Factbox-What would a UniCredit-Banco BPM combination look like? By Reuters

By Andrea Mandala and Valentina Za

MILAN (Reuters) – Italy’s third-largest bank Banco BPM has been on UniCredit CEO and veteran dealmaker Andrea Orcel’s wish list since he took up his current role in 2021.

After aborting previous attempts to bid for the rival, Orcel on Monday launched an unsolicited 10 billion euro ($11 billion) all-share offer for Banco BPM, with only a 0.5% premium to BPM’s closing price on Friday.

Orcel told an investor call he had to act because of an acceleration in Italy’s financial sector consolidation, where the government this month offloaded a 15% stake in Monte dei Paschi di Siena (MPS), potentially paving the way for an eventual tie-up between MPS and Banco BPM.

Here is a summary of why Banco BPM has always been seen as the perfect domestic target for UniCredit.

BULKING UP

Purchasing Banco BPM would help Orcel reduce the gap with Intesa Sanpaolo (OTC:), which in 2020 leapfrogged UniCredit to become Italy’s biggest bank by assets by buying northern mid-tier bank UBI and securing more than a fifth of the domestic market.

At the end of September, Intesa, which is focused on Italy, had 949 billion euros in assets, UniCredit, for which Italy is the main market among 13 where it operates, 800 billion and Banco BPM 195 billion.

NORTHERN ROOTS

Banco BPM has three-quarters of its more than 1,400 branches in Italy’s richer north. It has a 13% market share in Lombardy by number of branches, where UniCredit is weak despite having its homebase in Italy’s financial and fashion capital Milan.

Additionally, Banco BPM has an 8% market share in Veneto, another wealthy region in the north east, and 10% in Turin’s Piedomont’s region.

COMBINED MARKET STRENGTH

After a merger, the combined entity’s market share would reach 20% in several economically crucial regions, such as Lombardy (24%), Veneto (21%), and Emilia-Romagna (21%), without creating dominance in any specific province, calculations by Italian broker Intermonte showed.

FINANCIAL BENEFITS

Orcel said on Monday cost savings from a combination could reach 900 million euros a year before taxes and 800 million after taxes, and would only minimally affect the branch network. Additional revenues are estimated at 300 million euros a year.

Banco BPM has 19,578 employees and UniCredit around 77,000 globally, of whom 38% are Italy.

The return on investment for UniCredit from a deal is expected to surpass 15%, with earnings per share increasing by a ‘high single-digit’ percentage within a…