Banco BPM says any Credit Agricole deal must adequately compensate shareholders

By Andrea Mandala

MILAN, Nov 12 (Reuters) - The board of Banco BPM on Thursday gave CEO Giuseppe Castagna a mandate to engage with Credit Agricole over its merger proposal - warning that the terms of any deal would need to reflect the fact that the French bank would effectively gain control.

After a very preliminary review of the proposal, Banco BPM said the transaction would create a banking group of primary standing, but deprive BPM of any takeover appeal, meaning shareholders would need to be adequately compensated.

BPM has been a coveted takeover target in recent years, drawing interest also from UniCredit as well as Monte dei Paschi, which has contributed to lifting its share price.

Credit Agricole on Monday proposed combining Banco BPM - of which it owns 29.6% - with Credit Agricole Italia in a transaction that would leave the French bank holding around 45% of the merged entity and create Italy's third-largest banking group.

Banco BPM said the term of any proposal to be put to its investors would also need to adequately reflect the strengths of its business model so as to secure the "broadest possible support among shareholders".

The deal proposed by Credit Agricole requires approval under Italy's "whitewash" procedure: minority investors need to be onboard for Credit Agricole to be able to raise its stake above the mandatory takeover threshold without launching a buyout offer for the whole of BPM.

Credit Agricole has proposed Banco BPM pays out €1 billion as an extraordinary dividend before the merger and gets valued at a 20% premium versus Credit Agricole Italia in the deal.

It projects annual benefits of around 800 million euros from the combination.

(Reporting by Andrea Mandalà, editing by Alvise Armellini and Valentina Za)