How UniCredit swept up a stake in Commerzbank in a bid to grow in Germany By Reuters

By Emma-Victoria Farr, Lucy Raitano and John O’Donnell

FRANKFURT/LONDON (Reuters) – It was late on Tuesday evening in Europe and investor suspicions were growing. The German government’s efforts to sell Commerzbank (ETR: ) shares in a market placement, at first glance a simple task, were stalled.

They expected the deal to close shortly after JPMorgan and Goldman Sachs began taking orders earlier that afternoon, according to a source familiar with the deal, and emailed updates that the banks had sent to investors, seen by Reuters. The sources requested anonymity because details of the sale were private.

But it wasn’t until the early hours of Wednesday that the news arrived.

In a surprise — and rare move — all of the shares, worth about 700 million euros ($771.3 million), went to a buyer, and Goldman was no longer involved in the sale.

Italy’s UniCredit, led by CEO Andrea Orcel, amassed the entire 4.5% stake, outbidding others.

What’s more, the lender had quietly bought another 4.5% on the open market, making UniCredit one of its biggest shareholders and opening the door to a potential deal with Commerzbank, which had swooped in on Goldman as a defense adviser.

Some German government officials said they were blindsided by Orcel’s move. But there has been long-standing talk of the Italian bank, which is flush with excess capital and already owns German lender HVB, being keen on Commerzbank if the opportunity was right. And European regulators have long favored consolidation in a sector plagued by low profitability.

Berlin’s announcement last week that it wants to sell part of its crisis-era 16 percent stake in Commerzbank appears to have given Orcel, the consummate M&A banker, that chance.

“It is unlikely that UniCredit has come across this in the way it is painted in the market, it is likely to be much better coordinated than it appears and there is likely to be a complex long-term strategy at play,” he said Mark Kelly. CEO of MKP Advisors.

UniCredit declined to comment for this article. Officials at JPMorgan and Goldman Sachs declined to comment on their role in the deal.

UniCredit paid a 4.8 percent premium to the closing price on Tuesday, spending about 700 million euros on the government stake, according to a filing. JPMorgan was forced to accept the best offer in the interest of a fair and transparent process, said another person, who was not authorized to speak publicly.

Meanwhile, the other sales accountant, Goldman, had to walk away from the deal because of the potential conflict, a third person added. He was now leading the defense for Commerzbank.

When the news broke on Wednesday, Orcel approached Commerzbank management to explore potential merger talks, another source familiar with the situation told Reuters.

UniCredit said it is seeking approval to buy more than 9.9 percent of Commerzbank if it wants.

“From here, the ball is very much in UniCredit’s court and all eyes will be on it continuing to grow its shareholding in Commerzbank above 9.9%,” said Filippo Alloatti, head of finance (credit) at Federated Hermes (NYSE:) .

Other European banks may also be considering their strategic options, including Deutsche Bank, which declined to comment on Wednesday.

Commerzbank wasted little time. She hastily called a board meeting on Wednesday during which she discussed how to maintain the German lender’s independence, exploring defense strategies to resist a potential bid from UniCredit, said one source, who asked not to be named. as the discussions were private.

Germany is likely to pause on any further share sales after being seized, a government source said, adding that the bank and government must assess what is now a new situation. Also, trade unionists, fearing large job losses, also oppose a relationship. Commerzbank shares closed up 16.6% at 14.69 euros in Frankfurt, while UniCredit closed 0.2% higher in Milan.

(1 USD = 0.9075 euros)