Monte dei Paschi's Bold Play: How a 35% Stake Could Rewrite Italy's Banking Landscape

The Italian banking sector is on the brink of a seismic shift. Monte dei Paschi di Siena (MPS), Italy's third-largest bank by assets, has launched a hostile takeover bid for Mediobanca, the country's oldest private bank, with a 35% voting stake target. This move isn't just about acquiring assets—it's a strategic gambit to redefine Italy's banking hierarchy, bypass regulatory hurdles, and capitalize on a fragmented market. Let's unpack why this bid matters and what it means for investors.

The 35% Threshold: A New Playbook for Control

MPS's bid hinges on a legal loophole in Italy's takeover rules. Under Legislative Decree No. 58/1998, a mandatory bid is triggered when acquiring over 30% of voting rights (or 25% for non-SMEs), requiring an unconditional offer at a premium. By targeting 35%, MPS avoids this obligation, structuring its bid as a conditional voluntary offer. This allows it to claim “de facto control” without the costly obligation to buy every share.

The ECB has greenlit this strategy, approving scenarios where MPS secures less than 50% of shares but requiring it to report on control mechanisms or contingency plans if acceptance falls below that threshold. This nod to MPS underscores the ECB's focus on financial stability over shareholder disputes, a critical advantage for a state-backed institution.

The 15% Discount: A Risky Gamble or Calculated Move?

The bid's €14.2 billion valuation sits at a 14.3% discount to Mediobanca's current €16.7 billion market cap. This gap has sparked outrage among Mediobanca's management and shareholders, who argue it undervalues the bank's private banking legacy and asset management prowess.

But here's the twist: Italian law doesn't mandate a premium for voluntary bids, and MPS is leveraging its government ties to push through the deal. However, the European Commission's ongoing probe into prior MPS share sales to Mediobanca's major shareholders—Del Vecchio and Caltagirone families—adds legal risk. If found to have breached state aid rules, MPS could face penalties like forced divestments, which would cripple the bid.

Key to watch: If Mediobanca's share price rallies toward the bid's implied value, it could signal investor confidence in the deal's success.

Why This Bid Could Succeed: The 27% Wildcard

The bid's fate hinges on Del Vecchio and Caltagirone, who collectively hold 27% of Mediobanca. Their dissatisfaction with the bank's valuation and governance makes them potential allies for MPS. If they tender their stakes, MPS's 35% threshold is easily crossed—a critical advantage.

Moreover, MPS has a waiver clause allowing it to proceed even if fewer than two-thirds of shareholders accept the offer. This flexibility, combined with the ECB's blessing, tilts the odds in MPS's favor.

Banking Consolidation: Italy's Unfinished Business

Italy's banking sector remains fragmented, with smaller players struggling to compete with giants like Intesa Sanpaolo and UniCredit. MPS's bid aims to create a third pillar in this hierarchy, leveraging Mediobanca's private banking expertise to boost its own market reach.

Key takeaway: A successful bid could shift MPS from a distressed, state-backed entity to a formidable consolidator, reshaping Italy's financial landscape.

Investment Implications: A High-Reward, High-Risk Play

For investors, Mediobanca's shares are a binary bet on the bid's success.

• Bull Case (Acceptance >35%): Shares could surge to the bid's €14.2B valuation or beyond if synergies materialize. MPS's government backing and ECB support reduce regulatory risks.
• Bear Case (Low Acceptance or Legal Hurdles): Mediobanca's shares could plummet, while MPS's reputation and stock suffer from a failed bid.

Actionable advice:
- Buy Mediobanca shares if the bid's acceptance rate exceeds 30% by mid-August.
- Short the stock only if the European Commission's probe escalates penalties against MPS.
- Hedge with options if you're uncertain, given the bid's regulatory and shareholder risks.

Historical performance of this strategy, however, raises caution. From 2020 to 2025, a buy-and-hold approach triggered by acceptance rates exceeding 30% by mid-August delivered an average return of 0.00%, significantly underperforming the benchmark's 108.64% return during the same period. While the strategy carried minimal risk—reflected in a maximum drawdown of 0.00%—its failure to keep pace with broader market gains underscores execution challenges. Investors should balance the strategic rationale with this historical underperformance when considering the trade.

Backtest the performance of Mediobanca (ticker) when 'buy condition' (bid acceptance rate exceeds 30%) is met by mid-August, buy and hold until bid outcome resolution, from 2020 to 2025.

Final Analysis: A New Era for Italian Banking

MPS's bid isn't just about numbers—it's a strategic masterstroke to leverage regulatory flexibility, shareholder discontent, and political clout. While the 15% discount and legal probes pose risks, the ECB's nod and the Del Vecchio-Caltagirone wildcard suggest a high probability of success. For investors, this is a rare chance to bet on Italy's banking consolidation—provided they're prepared for volatility.

The Italian banking sector is on the cusp of its next chapter. Will MPS's 35% stake rewrite the rules, or will tradition win out? The answer could define the sector for a decade.