Italy's Mediobanca, Monte dei Paschi Extend Losses After MPS Surprise Bid on Merchant Bank

Shares in Italy's Mediobanca and Monte dei Paschi (MPS) extended losses on Monday, following the state-backed lender's surprise 13.3-billion-euro ($13.93 billion) bid on the merchant bank. The offer, which values Mediobanca's stock at roughly €15.992 each, a 5% premium to the close price of Jan. 23, has puzzled analysts and investors.

Monte dei Paschi, the world's oldest bank, required a state rescue in 2017 after years of crippling losses. However, under the leadership of UniCredit veteran Luigi Lovaglio, the bank has turned its fortunes around and is now moving in an ambitious direction. The bid confirms that MPS has completely recovered and is ready to take on a more prominent role in the Italian banking sector.

The proposed takeover comes as the Italian government is moving to re-privatize MPS, whose largest shareholder has been the government since a bailout in 2017. The government introduced new shareholders in November, including Delfin, the holding company of late billionaire Leonardo Del Vecchio, and Roman tycoon Francesco Gaetano Caltagirone. Both Delfin and Caltagirone are also the largest shareholders in Mediobanca, with combined stakes close to 30%.

Monte dei Paschi's proposed takeover of Mediobanca aims to create a "new national champion" in Italy's banking industry. By merging with Mediobanca, MPS hopes to leverage the excellence of both brands, preserving their unique positioning while creating a more resilient and diversified financial institution. The combined entity would have a stronger presence in wealth management, investment banking, and retail banking, potentially challenging the dominance of other major players like UniCredit and Intesa Sanpaolo.

However, analysts have raised concerns about the limited synergy potential and low chances of success for the deal. KBW analysts Hugo Cruz and Ben Maher noted that the proposal has limited synergy potential and that the chances of success are low. To address these challenges, MPS should focus on identifying and leveraging strategic synergies, engaging with regulators early on, and securing the support of key shareholders.

In conclusion, Monte dei Paschi's surprise bid on Mediobanca has the potential to reshape the Italian banking sector's competitive landscape. However, the deal faces challenges, such as limited synergy potential and low chances of success. To overcome these obstacles, MPS should focus on strategic synergies, regulatory engagement, and shareholder support. The outcome of this takeover bid will have significant implications for other major players like UniCredit and Intesa Sanpaolo, as well as the broader Italian banking sector.