(Bloomberg) -- Banco BPM SpA is exploring two main options to fend off a takeover by rival UniCredit SpA: boosting its financial targets as a standalone defense or reaching a merger agreement with Banca Monte dei Paschi di Siena SpA, people familiar with the matter said.
The Milan-based bank is studying the possibility of ratcheting up its profitability target and increasing the amount of money it wants to pay out to investors, people familiar with the matter said. The aim would be to convince shareholders they’re better off if they reject UniCredit’s offer and Banco BPM remains independent, the people said.
The other option Banco BPM is internally analyzing is a combination with Monte Paschi, which would only happen if it had the support of Monte Paschi’s management and its key investors, the people said. The announcement of a tie-up would increase the potential new entity’s size and make it harder for UniCredit to buy it, they said, asking not to be identified because the deliberations are private.
Banco BPM’s discussions of its defense options are at an early stage and no decision has been taken, the people said. It hasn’t had any contact with Monte Paschi about a potential tie-up, they said.
A representative for Banco BPM declined to comment.
Monte Paschi shares rose as much as 3.2% on the news, while Banco BPM declined as much as 0.6%.
UniCredit Chief Executive Officer Andrea Orcel last month made an unsolicited offer for Banco BPM in a bid to create Italy’s biggest lender. Banco BPM CEO Giuseppe Castagna has rebuffed the approach as too low and warned it could put almost a third of the bank’s jobs at risk.
Milan-based UniCredit has offered 0.175 newly-issued share for each share in its crosstown rival. That values Banco BPM at €10.4 billion ($10.9 billion) at Thursday’s market close, significantly below its current market capitalization of €11.9 billion.
UniCredit’s approach came just weeks after Banco BPM itself bought a significant stake in Monte Paschi from the government, a move widely seen as a first step in a plan pursued by Italy to create a new large domestic lender. The UniCredit bid complicates that plan.
Banco BPM also recently offered to buy Italian asset manager Anima Holding SpA. The UniCredit bid has made it more difficult for to pursue that plan as Italian takeover laws impose sweeping restrictions on the strategic decisions that targets of a takeover approach can make.
The strategy revamp that Banco BPM is exploring would still assume that the Anima takeover takes place, the people familiar with the matter said. The more ambitious revenue and profitability targets that Banco BPM is exploring would partly rely on that deal, they said.
If Banco BPM were to seek a merger agreement with Monte Paschi, it would try to achieve that before the end of January, some of the people said. The idea would be to formally present the offer to Banco BPM investors before UniCredit’s Annual General Meeting on April 10. That’s the day when the larger bank will ask its shareholders to approve its bid for Banco BPM, they said.
Banco BPM intends to discuss its plans with shareholders, including Credit Agricole SA and several Italian banking foundations, the people said. That would likely happen once it completes the internal review of defense options, but before making a final decision on them, the people said.
The bank’s top management is also meeting institutional investors in an effort to widen the group of shareholders that supports its strategy, according to the people.
It is unlikely that the bank will present its defense strategy before full-year results on Feb. 7, they said.
--With assistance from Luca Casiraghi.
(Updates with share reaction in sixth paragraph.)
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