By Valentina Za and Andrea Mandala
MILAN (Reuters) - Intesa Sanpaolo's surprise 4.9 billion euro ($5.3 billion) takeover bid for UBI Banca answers supervisor calls for mergers to bolster Europe's banking sector and its global clout, Italy's top retail bank said.
Intesa late on Monday announced an all-paper offer to buy smaller peer UBI and create the euro zone's seventh-largest bank by assets, focused on wealth management and insurance and in charge of more than 1.1 trillion euros in customers' financial assets.
News of the deal sent shares in UBI Banca <UBI.MI> surging 24% to 4.313 euros on Tuesday, just above the price of 4.254 euros implicit in Intesa's offer. Intesa <ISP.MI> shares rose 2.4% outpacing a 1.6% rise in the Italian sector <.FTIT8300>.
UBI has so far made no comment and its board will meet on Wednesday to review the bid.
Efforts to create a unified euro zone banking market have stalled amid opposition in core countries to establishing a single deposit guarantee scheme before tackling southern European banks' bad debts and large sovereign debt exposure.
Like rivals in other southern EU states, Italian banks have been restructuring over recent years, shedding bad debts and cutting costs. Goldman Sachs recently said new cost cuts would be difficult without the overlaps brought about by mergers.
"Now that we've done our homework, which at times required some blood-letting, regulators are saying you need to reward capital or else you're going to lose it," Intesa Chairman Gian-Maria Gros Pietro said.
Dogged by negative interest rates, many euro zone banks are unable to repay their cost of capital and trade at a discount to their book values.
Under Andrea Enria, an Italian formerly at the helm of European Banking Authority, the European Central Bank's supervisory arm has renewed calls for consolidation, indicating it may soften its stance to ease tie-ups.
"Enria has been clear, they are looking for consolidation," Intesa CEO Carlo Messina told analysts, adding it was also a geopolitical issue.
"Europe cannot be a player next to the U.S. and China without reinforcement from the banking sector."
Messina said cross-border mergers were a tough sell with investors because they did not yield enough synergies through cost cuts, driving Intesa to target Italy's strongest second-tier bank.
Rival heavyweight UniCredit <CRDI.MI> has also shelved plans for a cross-border merger and is now focusing on boosting investor returns through dividends and share buybacks.
CATALYST FOR CONSOLIDATION
Messina said Intesa was confident that European authorities, which must approve the deal, viewed its offer positively and said it would be "unbelievable" to make such a move without a favourable approach from supervisors.
Broker Jefferies said the start of a long-awaited new round of mergers in Italy could be a catalyst for other European markets seen in need of consolidation, such as Spain.
European banks have taken longer to recover from the global financial crisis, losing market share to U.S. rivals. JPMorgan <JPM.N> is now worth almost as much as the top 10 euro zone banks combined.
The industry as a whole faces competition from non-banking players and needs major digital investments.
SHUFFLING THE CARDS
Intesa's move throws open prospects for a new round of mergers among second-tier lenders in Italy, which UBI had been expected to lead as the healthiest mid-sized bank.
Messina said the offer was not "friendly in a technical way" only because Intesa had been obliged to act in the way it did to avoid insider trading risks.
The offer came only hours after UBI announced a new three-year plan and CEO Victor Massiah left for London late on Monday to meet investors.
Messina said he had informed Massiah of the offer in a phone call immediately after Intesa's board approved it and had then called Economy Minister Roberto Gualtieri.
"We hold UBI's top managers in high esteem and we hope its board will judge our bid favourably, but at the end of the day our offer is for UBI shareholders," Messina said.
Intesa, which has the richest valuation among Italian banks, is offering 1.7 newly issued shares for each UBI stock tendered.
The plan would see 5,000 voluntary layoffs, from a combined workforce at the two banks of 110,000, with 2,500 planned hires of young people.
Italy's biggest banking unions said they were monitoring the deal, adding it created value for the country.
To address antitrust issues, Intesa's plan is to sell 400-500 branches and 20 billion euros in client loans to BPER Banca <EMII.MI> and some of UBI's insurance assets to UnipolSai <US.MI>.
Shares in BPER, which would have to raise up to 1 billion euros to fund the deal, plunged 10% on Tuesday.
Mediobanca <MDBI.MI> acted as Intesa's sole adviser, while Rothschild advised BPER. Mediobanca has also underwritten BPER's cash call for which it is sole global coordinator and sole bookrunner.
(Additional reporting by Stephen Jewkes; Editing by Susan Fenton and Jane Merriman)