(Bloomberg) -- UniCredit SpA Chief Executive Officer Andrea Orcel moved to more than double the lender’s stake in Commerzbank AG, in a dramatic development that’s likely to escalate tensions with the German government.
UniCredit said Monday that it had bought derivatives contracts for an 11.5% stake in Commerzbank, enabling it to add to the 9% of the bank that it already owns. The step effectively makes UniCredit the largest shareholder ahead of the German government and puts it on course for a takeover.
The move is almost certain to exacerbate tensions between Orcel, one of Europe’s most prolific dealmakers who surprised markets this month by saying he’s considering a full takeover of Commerzbank, and the German government, which has indicated it opposes a deal. Late Friday, Berlin announced that it will pause a planned disposal of its stake in Commerzbank, with some officials apparently blindsided by Orcel’s approach.
Commerzbank “is a stable and profitable institute,” the government said late last week. “The bank’s strategy is geared toward independence.” Germany is still owns about 12% of Commerzbank.
The German Finance Ministry didn’t immediately respond to a request for comment.
Commerzbank shares reversed a previous drop to gain as much as 0.8% in Frankfurt, while UniCredit extended losses in Milan to decline as much as 3%. The German bank is up about 24% since UniCredit first disclosed its stake almost two weeks ago, while the Italian rival gained about 3%.
The drama now unfolding started in early September, when Germany announced it planned to sell about 4.5% of Commerzbank, in a first step to returning the lender to full private ownership. The government had envisioned a sale to a range of institutional investors, arguing the lender had turned the corner and was strong enough to stand on its own feet.
Instead, UniCredit snapped up the entire holding by outbidding rivals, disclosing that it had previously amassed more shares of Commerzbank quietly in the market. The move irked German officials who said it lacked transparency, a person familiar with the matter has said, asking not to be identified discussing government deliberations.
Friedrich Merz, the leader of Germany’s main opposition party, said Monday that the government had “lost control” of the Commerzbank transaction. “There are many questions that we have for the government,” he said.
Commerzbank’s management board is meeting for a strategy meeting in a village in the Taunus hills near Frankfurt. Management is scheduled to present its strategy to the bank’s supervisory board there on Tuesday and Wednesday, but Unicredit’s move is expected to be the talk of the gathering, according to people familiar with the matter.
The additional 11.5% stake UniCredit disclosed on Monday is linked to derivatives, which means that the Italian bank has the right to take ownership of the shares in the future. UniCredit, which currently doesn’t have regulatory clearance to raise its stake beyond 10%, has submitted a request to increase its stake to as much as 29.9%.
It’s a strategy Orcel also used to buy around 4.5% in Commerzbank ahead of the government share sale this month. UniCredit purchased derivatives known as total return swaps for an 1.7% stake, a filing shows. That helped the Italian lender stay below 3% in physical holdings and avoid triggering a shareholder notification that would have tipped off Berlin and the competition to Orcel’s intentions.
Orcel has repeatedly made repeatedly clear that he remains open-minded with regard to what happens next to its stake. He has also said that at least some in Berlin were aware of his bank’s intentions, and emphasized in recent days that he’s not interested in pursuing a hostile takeover.
Still, his latest move shows Orcel’s “outright intent to acquire the business,” said Cole Smead, CEO & portfolio manager of investment firm Smead Capital Management, which owns UniCredit shares.
“It shows how much trouble the government will have stopping this,” he said.
(Updates with context throughout.)
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