Italy's BPM ends Monte dei Paschi merger effort after Credit Agricole rejects plan

(Corrects spelling of BPM in paragraph 12)

By Valentina Za and Anna Peverieri

July 31 (Reuters) - Italian mid-sized lender Banco BPM on Friday abandoned efforts to seek a merger with rival Banca Monte dei Paschi di Siena, after stepping in to help it fend off a takeover bid by bigger peer Intesa Sanpaolo.

Banco BPM's main shareholder, France's Credit Agricole, said earlier on Friday it saw no value in a tie-up between the two mid-sized banks and would prefer to combine its own Italian unit with Banco BPM.

Credit Agricole has cultivated a long-standing presence in Italian banking and strengthened its shareholding in BPM at a time when smaller lenders have become potential targets for large Italian banks, which are looking to bolster their position as the sector consolidates.

BPM said its board had decided to halt any discussions with Monte dei Paschi over a potential merger given no definitive progress had been made since it sought merger talks.

Monte dei Paschi said it had taken note of the position of both BPM and Credit Agricole and agreed to end any preliminary consultations, which it saw as necessary before proper negotiations.

It added it would continue to assess all strategic options in the best interest of its shareholders, employees and clients.

'LOVE LETTER'

The Italian government, which rescued Monte dei Paschi in 2017, promoted a merger with BPM that would combine the two mid-sized banks and create a third large player alongside Intesa and UniCredit.

The government's efforts, however, prompted UniCredit to step in with a bid for BPM in late 2024, which later failed.

UniCredit was the largest bank in Italy until Intesa in 2020 completed a hostile acquisition of a second-tier bank.

With UniCredit CEO Andrea Orcel focused on a hostile takeover of Germany's Commerzbank, Intesa last month put forward an unsolicited €35 billion offer for Monte dei Paschi.

Intesa, which holds a one-fifth market share in Italian banking, had steered clear of a first round of banking consolidation in Italy. That wave last year culminated in Monte dei Paschi buying merchant bank Mediobanca and becoming the main investor in the sector's most prized asset: insurer Generali.

Hours before Intesa announced its bid for Monte dei Paschi in June, BPM issued an invitation of its own for merger talks with Monte dei Paschi, sending what Intesa CEO Carlo Messina called "a love letter" rather than a concrete proposal.

Monte dei Paschi has said Intesa's offer was insufficient, without formally rejecting it, and pledged to explore all possible alternatives including BPM's proposal.

Speculation about an imminent announcement of a BPM-Monte dei Paschi merger plan had mounted in Italian media in recent days, until on Friday Credit Agricole CEO Olivier Gavalda dismissed such reports as "completely false" and said it was hard to see value in a deal between the two lenders.

A person with knowledge of Monte dei Paschi's defence strategy told Reuters earlier this week that the Tuscany-based bank would pursue an alternative to Intesa's proposed deal only if it created more value for shareholders, with the €3 billion cash component in Intesa's bid setting a benchmark.

($1 = 0.8672 euros)

(Reporting by Anna Peverieri in Barcelona; Editing by Louise Heavens, Sahal Muhammed and Edmund Klamann)