Credit Agricole pitches Banco BPM tie-up in Italy banking shake-up

By Mathieu Rosemain and Jakob Van Calster

PARIS, Nov 9 (Reuters) - Credit Agricole SA said on Monday it had proposed merging its Italian subsidiary with Banco BPM, a move that would create Italy's third-largest bank and deepen the French lender's role in a consolidation wave reshaping the Italian financial sector.

The deal would give Credit Agricole, which already holds a 29.6% stake in Banco BPM, roughly 45% ownership of the new entity. The tie-up proposal comes amid a frenzy of dealmaking in Italy's banking sector, as lenders seek greater scale to fend off rivals and avoid being left behind in a rapidly consolidating market. 

Rome has long favoured the emergence of a third domestic banking group capable of challenging market leaders Intesa Sanpaolo and UniCredit, with Monte dei Paschi di Siena viewed as a key piece in achieving that goal.

The French bank briefed the Italian government before going public with the plan, three people familiar with the matter said. It moved ahead with the announcement after media reports and investor questions made it difficult to keep the project under wraps, two of the people said.

A spokesperson for Italy's Treasury declined to comment on whether Rome was still taking a neutral stance on the banking M&A wave. Banco BPM declined to comment. 

'FRIENDLY' PROPOSAL COULD FAVOUR BANCO BPM SHAREHOLDERS

Credit Agricole, which called the proposal "friendly", added that Banco BPM Chief Executive Giuseppe Castagna would lead the merged group. 

The proposal, which has been submitted to Banco BPM's board, includes an exchange ratio reflecting a 20% valuation premium and a €1 billion ($1.1 billion) extraordinary dividend for the Italian bank's existing shareholders, Credit Agricole said.

This effectively values Credit Agricole's contributed Italian business at a discount, giving Banco BPM shareholders a larger stake in the combined group than they would receive under a merger based on an equal valuation multiple. Credit Agricole Italia does not publish stand-alone financial figures.

JPMorgan said in a note the deal appeared more "attractive" for Banco BPM shareholders than for Credit Agricole.

Credit Agricole shares were down around 1% in early trade on Monday, while Banco BPM rose nearly 10%.

The combined group would generate around €800 million in annual synergies, Credit Agricole said, without elaborating. It would also help lift Banco BPM's earnings per share by about 24% in 2027, it added. 

The transaction would need to clear Italy's so-called "golden power" rules, which allow Rome to intervene in transactions deemed strategically important, as well as banking and competition approvals.

Banco BPM shareholders would also need to approve the transaction under Italy's "whitewash" procedure, which would exempt Credit Agricole from launching a mandatory takeover bid.

Credit Agricole has been one of Europe's most acquisitive banks in recent years, expanding its wealth management business, strengthening its presence in Italy and pursuing opportunities in Germany as it seeks to diversify beyond its mature French retail market.

The proposed transaction could be completed in the second half of 2027, Credit Agricole said.

($1 = 0.8961 euros)

(Reporting by Mathieu Rosemain, Jakob Van Calster and Mateusz Rabiega;Additional reporting by Andrea Mandala, Giuseppe Fonte and Augustin Turpin;Editing by Anna Pruchnicka, Lincoln Feast, Louise Heavens and Joe Bavier)