On the 22nd of January, the Italian media reported rumours of a possible corporate takeover that could represent a major shakeup to the country’s corporate landscape. Intesa San Paolo, the largest Italian bank by market capitalisation, is allegedly interested in acquiring control over Assicurazioni Generali, the Trieste-based Italian insurance company.
A Mountain of a Merger
The proposed merger would create a giant with more than €60bn worth of market capitalization, and with €844bn of assets under management. Intesa SanPaolo, a Milan-based financial institution, lead by Carlo Messina, sources the majority of its cash from retail and corporate banking activities, which together amount to 60% of its total revenues.
The remaining revenues are derived from private banking, insurance and asset management operations. Only as much as 10% of the total are revenues generated from foreign operations, which are to be found mainly in Balkan states. As of today, the company is the eighth bank in Europe by market capitalisation, amounting to €40bn. Intesa San Paolo was also one the top performers of last summer EBA’s stress test.
Assicurazioni Generali is an insurance company with a solid presence in Italy and Europe, and the fourth-largest insurance company in Europe behind Allianz, Axa, and Zurich. Three-fourths of its revenues come from its Italian, German and French operations. The rising middle-class in Central and Eastern Europe ensures to Generali a source of renewed growth in an otherwise stagnant business.
On the 22nd of January, rumours of strong interest from Intesa in Generali were leaked. The insurance company has implemented the usual defensive measures and, by buying 3% of Intesa’s voting shares, it has prevented Messina’s group from increasing its presence in Generali’s capital.
The underlying rationale is to be found in Messina’s desire to diversify away from traditional banking towards embracing a new business model mostly based on the more profitable wealth and asset management businesses.
In addition to the cost savings that any M&A deal of this size is predicted to bring to the table, Intesa sees further revenue synergies arising from the possibility of selling Intesa’s products through Generali’s advisory business, and, vice-versa, to sell Generali’s insurance products through Intesa’s branches.
However, people close to the matter see much more than synergies as the reasons behind the possible creation of a €60bn financial giant sitting at the heart of a troubled southern Europe.
Buying Italian Assets
Italy has witnessed an increasing foreign influence in its corporate world. In the last few years, Pirelli, iconic Italian tire-maker, was bought by Chinese Chem-China; Pioneer, an asset manager, has been bought by the French company Amundi; and AC Milan and FC Inter, two of the most popular football clubs of the country, have new Chinese owners.
More importantly, Telecom, the historic Italian Telecommunication company, and Mediaset, arguably the most influential media company in the country, are held by almost 25% by the French company Vivendi.
An eventual buyout of Generali orchestrated by Intesa would ensure that the most important Italian insurance company would not fall into foreign hands. Messina moves to defending “Italianity” and is said to be entertained by whomever states to be defending this value in French.
The deal has raised many eyebrows among analysts, who argue that the timing may prove wrong and that the regulatory burden which would affect an institution of that size may be hard to bear. Furthermore, the deal structure resembles the ABN-RBS deal which has ultimately led the UK institution into a state-funded bailout.
Credit Suisse’s analysts, however, see light at the end of the tunnel, having predicted synergies around €900-1200bn arising from the deal and further benefits deriving from geographical diversification. Messina has declared that Intesa’s capital position will not deteriorate as a consequence of the deal, and, as such, the generous payout policies of the Italian bank will survive the transaction.
The deal’s structure appears very complicated, and the defensive strategy implemented by Generali indicates that the takeover will be rather hostile. In this sense, another issue arises. Mediobanca, the most iconic Italian merchant bank, is the major shareholder of Generali, with around 13% in outstanding shares.
Mediobanca historically represents Italy’s financial powerhouse (which has fiercely fought with rival Banca IMI Intesa Sanpaolo’s merchant bank) for the control of Italian corporate affairs.
This solution has been vehemently opposed by Mediobanca’s bankers, which also seems intent on fighting strenuously in the battle for control over Generali.
The Italian Government, through its most prominent figure Prime Minister Paolo Gentiloni, has recently stated that the executive was monitoring the evolution of Vivendi-Mediaset’s situation, feeding rumours of a state intervention to protect politically important assets from foreign influence. After the state-funded intervention on Monte dei Paschi di Siena’s capital, the Italian government is likely to be willing to have its voice heard over the Generali-Intesa deal too.
At this point, it is incredibly difficult to tell whether this deal would prove beneficial to the parties involved, and, more importantly, if it will be concluded. However, no one could argue that the battle will be fought on grounds which go well beyond the pure financials of the two companies involved.