Italy's Intesa examining possible 'combinations' with Generali

By Paola Arosio and Gianluca Semeraro

MILAN (Reuters) - Italian banking and insurance group Intesa Sanpaolo (ISP.MI) confirmed on Tuesday it was examining a possible tie-up with Italy's largest insurer Assicurazioni Generali (GASI.MI), in what would be one of Europe's biggest such deals.

In a statement, Intesa said its management "carefully examines, and will examine, any possible opportunities to strengthen its positioning and financial performance... including possible industrial combinations with Assicurazioni Generali."

It was the bank's first comment since reports emerged at the weekend that it was interested in building a stake in Generali.

Earlier on Tuesday sources told Reuters Intesa is considering a share offer for a majority stake in Generali, whose market value they put at 22 billion euros ($24 billion).

Intesa, worth almost double that, has the backing of at least two major shareholders for a bid.

Generali's recent leadership change and the perceived instability of its share register, combined with political weakness in Rome, which sees it as a strategic asset, have all encouraged bid talk and shares in the 186-year-old company soared on Tuesday.

Other rumored suitors include France's AXA (AXAF.PA) and Germany's Allianz. Generali chief executive Philippe Donnet, hired last year, was formerly an executive of AXA.

Generali, Allianz and AXA all declined to comment.

Intesa aims to reorganize Generali and sell some assets abroad, one source said. Intesa is already bigger in life insurance than Generali and a bid would attract anti-trust scrutiny.

The sources said Intesa's two main shareholders -- Compagnia di San Paolo and Fondazione Cariplo -- would tolerate a temporary reduction in dividends to help finance a takeover.

DEFENSIVE MOVE

Under Italian rules on cross-shareholdings, Intesa would have to launch an offer for at least 60 percent of Generali.

On Monday, Generali made sure of that by taking a 3.01 percent stake in the bank in a pre-emptive strike, effectively robbing Intesa of the option of taking a minority stake.

La Repubblica first reported on Tuesday that Intesa, whose board meets on Friday, was considering a share swap offer for Generali, which had 472 billion euros in assets under management at end-2016. Generali offered no explanation for its sudden investment in Intesa, borrowing shares rather than buying them outright.

"The move to acquire a stake of little more than 3 percent of the share capital of Intesa Sanpaolo has an obvious defensive quality," said analyst Luca Comi of brokerage Icbpi.

Generali, whose shares had risen by 9.8 percent to 15.64 euros by 1200 GMT, has returned as the subject of takeover speculation since Donnet was appointed.

Speculation of a deal involving Generali has been kept on the boil by plans by its biggest shareholder, Mediobanca (MDBI.MI), to reduce its 13 percent stake as part of a longer-term objective to bolster its capital.

FOREIGN TAKEOVER FEARS

Political uncertainty has also dogged Generali, on the grounds that a weakened Italian government would be less able to defend it against a foreign takeover.

Generali owns 70 billion euros in Italian government debt and is viewed as a strategic asset in Rome.

"Our country could not tolerate the loss of Generali, particularly if you look at assets under management. It would create too strong a competitor for Intesa," one of the sources told Reuters. "Together, the group would be a formidable one from an industrial point of view."

Italy's La Stampa daily has said that Intesa could seek to build a large stake in Generali, possibly as part of a broader deal with Germany's Allianz (ALVG.DE), Europe's biggest insurer ahead of Axa and Generali.

"Our understanding is that Intesa Sanpaolo would have purchased a large stake in Generali only to prevent a takeover or a merger with Axa," analysts at Mediobanca Securities said.

"In case of an offer coming from the French insurer, we do not rule out a counteroffer potentially being made by Allianz."

Shares in Generali closed up more than 8 percent on Tuesday. Intesa shares fell 4.5 percent and Allianz's were down just over 1 percent.

($1 = 0.9316 euros)

(Additional reporting by Valentina Za, Maria Pia Quaglia, and Giulia Segreti; Writing by Mark Bendeich; Editing by Silvia Aloisi and Ruth Pitchford)