Cross-border banking consolidation in Europe is here at last. UniCredit's current $18 billion offer for Germany's HVB, ABN Amro's offer for Italy's Banco Antonveneta and BBVA's bid for Italy's Banca Nationale del Lavoro all show the potential for dealmakers, following on from Santander's £8.5 billion ($15.5 billion) purchase of the UK's Abbey last year.
"All of us in Europe have been waiting for a cross-border banking deal for ages. Suddenly there are two separate bids going on for Italian banks alone," says a prominent investment banker.
However, the Santander/Abbey and UniCredit/HVB combinations indicate a fundamental change in opinion among European stock investors, which could open the way for large-scale, stock-funded, cross-border European deals across all sectors. UniCredit wants to pay five of its ordinary shares for each HVB share. Under a deal agreed by both sets of management, UniCredit's Alessandro Profumo will be CEO of the combined group.
Santander's use of Spanish stock to buy a UK company last year was considered particularly innovative, but the deal was received well by both Abbey and Santander shareholders and the Santander stock price has experienced double-digit growth since. "The Abbey/Santander and now the UniCredit/HVB stock transactions show that the attitude of European investors has changed," says Dirk Albersmeier, head of M&A for Germany at JPMorgan, financial adviser to HVB along with Citigroup. "Most stock is now managed on a pan-European basis, so it's less of an issue offering stock across markets. There's limited flow-back risk as shareholders increasingly don't mind whether they hold German or Italian stock, for example."
The share price of UniCredit, advised by JPMorgan and Goldman Sachs, was up 8% at the time of going to press, so the initial shareholder reaction to the deal has been good. Opposition among HVB shareholders since the deal was announced in mid June about holding Italian stock has been limited to some small German shareholder associations. However, shareholder reaction will not be thoroughly tested until the exchange offer of UniCredit shares for HVB stock is completed through a series of three tender offers. The first of these will not be launched until August.
Albersmeier says the deal sets important precedents for the size of future cross-border deals in all areas of European industry. After all, UniCredit's proposed takeover of HVB will not just be the largest ever European banking deal but also the largest European cross-border deal since 2001. "This should have a big impact on all sectors of the European market as there is a limit as to how much you can pay with cash."
Cross-border deals worth $195 billion have already been done within Europe this year, the highest in five years, according to Bloomberg data. M&A bankers predict that there are going to be a lot more cross-border deals in the second half of this year. If stock-funded transactions become more popular across the board, Santander/Abbey could just be the first of many such cross-border transactions in Europe.