Italy's Banking Power Play: MPS's Mediobanca Takeover Faces Stiff Headwinds

The Italian government’s unconditional approval of Monte dei Paschi di Siena’s (MPS) hostile takeover bid for Mediobanca marks a pivotal moment in the country’s banking sector. Yet, as the dust settles on this regulatory hurdle, the real battle lies ahead: overcoming Mediobanca’s vehement opposition, market skepticism, and the European Central Bank’s (ECB) looming scrutiny. This deal, valued at €13.3 billion, pits two divergent banking models against each other—MPS’s struggling retail-focused entity versus Mediobanca’s premium wealth and investment banking franchise—creating a high-stakes test of strategy, valuation, and regulatory will.

The Approval: A Green Light with Strings Unattached

The Italian government’s decision to grant MPS unconditional approval under its “golden powers” reflects its desire to consolidate the country’s fragmented banking landscape. This contrasts sharply with its cautious stance toward UniCredit’s takeover of Banco BPM, where Rome is reportedly considering conditions to preserve competition. For MPS, the nod removes a major obstacle, but the path to completion remains fraught.

Mediobanca’s Unyielding Resistance

Mediobanca has dismissed the bid as “devoid of industrial and financial rationale,” citing three critical flaws:
1. Strategic Misalignment: Mediobanca’s Wealth Management (WM) and Corporate & Investment Banking (CIB) divisions—generating €1.7 billion in combined annual revenue—depend on its reputation as an independent, conflict-free advisor. Merging with MPS, a bank with a 70% geographic focus on Central/Southern Italy’s SMEs, risks client attrition. As Mediobanca CEO Alberto Nagel noted, the deal would “undermine its identity as a high-margin, client-centric institution.”
2. Valuation Discounts: While MPS’s offer represents a 5% premium over Mediobanca’s January 23 closing price, it translates to discounts of 3% (using MPS’s January 27 share price), 7% (3-month average), and 28% (12-month average) when accounting for MPS’s volatile stock performance.
3. Financial Risks: MPS carries €3.3 billion in net equity liabilities, including tax assets and litigation, while Mediobanca boasts a 24% net profit surge to €1.3 billion in 2023-24. The latter’s standalone strategy, targeting €1.80 EPS and 15% ROTE by 2026, appears far more robust.

Market Skepticism and Regulatory Uncertainties

Market reactions have been telling. MPS shares fell nearly 10% post-announcement, while Mediobanca’s stock retreated 3.5% after an initial rally, reflecting investor doubts. Analysts question MPS’s ability to deliver €700 million in annual synergies, given the lack of overlapping operations.

The ECB’s role now looms largest. By June 2025, it must assess the deal’s financial stability implications, focusing on MPS’s weak balance sheet and the potential destabilization of Mediobanca’s strategic independence. Moody’s Investors Service, which upgraded MPS’s outlook to “positive” citing merger synergies, also warned that execution risks remain.

Shareholder Crosscurrents

Complicating the picture are cross-shareholdings between MPS and Mediobanca’s top investors, Delfin N.V. (19.8% in Mediobanca, 10% in MPS) and Francesco Gaetano Caltagirone (7.8% in Mediobanca, 5% in MPS). Both also own stakes in Assicurazioni Generali, Mediobanca’s major client, raising questions about misaligned incentives.

The Funding and Timeline

MPS’s bid relies on an all-share structure, avoiding cash outlays but requiring Mediobanca shareholders to trust MPS’s equity. Key pillars of its financial strategy include:
- €3 billion in tax credits, expected to boost profits over six years.
- A recent capital increase that tripled MPS’s share price since November 2022.
- A targeted completion date of September 2025, pending ECB and shareholder approvals.

Conclusion: A High-Water Mark for MPS, but Risks Abound

While MPS has secured political backing, the road to Mediobanca remains littered with obstacles. Mediobanca’s financial outperformance, strategic clarity, and strong shareholder alignment (with 70% of shares held by institutional investors) give it leverage to resist. The ECB’s potential rejection—particularly if it deems MPS’s balance sheet too fragile—could sink the deal, while market skepticism about MPS’s valuation and execution capability remains palpable.

For investors, the key questions are: Can MPS prove its ability to transform into a viable competitor to UniCredit and Intesa Sanpaolo? And will Mediobanca’s clients and talent stay loyal if pressured? With the ECB’s verdict due in June and regulatory scrutiny intensifying, this saga underscores a broader truth in banking: size alone doesn’t guarantee strength, and strategic misalignment can unravel even the most politically backed deals.