BPER's Undervalued Offer for BPS: A Threat to Shareholder Equity?

The proposed merger between BPER Banca Spa (BPER) and Banca Popolare di Sondrio (BPS) has ignited a heated debate over valuation fairness and shareholder value erosion. At the core of the controversy is BPER's 1.45 exchange ratio, which BPS management argues undervalues its equity by over 5.5% relative to current market prices, penalizing minority shareholders. Compounding concerns is Unipol's decision to sell 82 million BPER shares via a forward sale to avoid exceeding a 20% stake—a move signaling skepticism about the deal's terms. This article dissects the valuation discrepancies, strategic risks, and why BPS shareholders should resist the offer until terms are revised.

The Valuation Gap: BPS's Case for Fairer Terms

BPS's resistance hinges on a simple calculation: the 1.45 BPER/BPS exchange ratio implies an undervaluation of over 5.5% compared to BPS's current stock price. As of June 19, 2025, BPS shares traded at €11.48, while BPER's stock closed at €7.51. This results in an implied value of €10.89 per BPS share—€0.59 below BPS's market price.

The discrepancy is magnified by BPS's stronger fundamentals. While BPER's P/E ratio of 7.7x lags behind its peers, BPS's P/E of 7.3x is even lower, suggesting both banks are undervalued by the market. However, BPS's €15.0 billion market cap versus BPER's €10.75 billion highlights its superior scale. BPS also benefits from a 52/100 Liquidity Rank, indicating stronger debt-servicing capacity than BPER's riskier profile (Safety Rank: 31/100).

Analysts further note that BPER's DCF-based fair value estimate of €10.07—a 24.6% premium to its current price—suggests the merger's terms could shift if BPER's stock recovers. Until then, BPS shareholders are being asked to accept a 6% discount to BPS's February 5 valuation, even as BPER's own stock struggles.

Unipol's Forward Sale: A Vote of No Confidence?

Unipol's decision to offload 82 million BPER shares (5% of BPER's post-merger capital) to stay below a 20% stake sends a stark message. This maneuver—approved by Unipol's board and its related-party transaction committee—suggests the insurer does not trust the merger's long-term value proposition.

The forward sale raises two critical questions:
1. Why dilute exposure if the deal is fair? Unipol's action implies it anticipates BPER's stock will underperform post-merger, or that synergies will fail to materialize.
2. What does this mean for minority shareholders? If Unipol—the largest stakeholder in both banks—is hedging its bets, smaller investors face heightened risks of being left with diluted equity.

Strategic Risks: Synergies vs. Shareholder Erosion

BPER touts €290 million in annual synergies (€100 million revenue, €190 million cost savings) as justification for the merger. However, these projections face three major hurdles:

1. Market Skepticism: BPER's shares fell 0.5% on June 19, 2025, despite the merger's announcement. The market's muted response reflects doubts about whether synergies will outweigh integration costs.
2. Regulatory Scrutiny: Italy's banking consolidation wave has drawn antitrust concerns. BPS's objections could trigger investigations into whether the exchange ratio unfairly advantages BPER shareholders.
3. Valuation Backlash: BPS's board, backed by new chairman Pierluigi Molla, has rejected the offer as “significantly penalizing” shareholders. If minority investors follow suit, BPER may struggle to secure the 35% stake needed to gain control.

Investment Implications: A Call to Resist the OPS

For BPS shareholders, the math is clear: accepting the 1.45 ratio locks in a 5.5% undervaluation. Even BPER's own DCF analysis suggests its stock is undervalued, meaning BPS shareholders could be trading down into a weaker-performing equity.

Recommendations:
- BPS Shareholders: Reject the OPS and demand a revised exchange ratio of at least 1.55–1.60, aligning with BPS's market premium.
- BPER: Risk a prolonged merger process if it cannot address valuation concerns. A prolonged standoff could pressure BPER's already strained liquidity (Safety Rank: 31/100).
- Regulators: Scrutinize whether the offer meets fairness standards. A forced revision could set a precedent for minority shareholder protections in Italian banking deals.

Conclusion: Fairness Trumps Consolidation

The BPER-BPS merger is a test case for how Italian banks balance consolidation with shareholder fairness. BPS's refusal to accept a subpar offer underscores a broader truth: undervaluing equity risks triggering regulatory pushback and eroding investor confidence. Until BPER revises its terms to reflect BPS's intrinsic worth, the deal should be rejected—a lesson in prioritizing stakeholder equity over merger momentum.

Final Verdict: BPS shareholders should hold firm. A revised offer or regulatory intervention may yet salvage this deal—but only if fairness takes precedence over consolidation at any cost.