Mediobanca vs. Monte Paschi: A Clash of Valuations and Values in Italy's Banking Sector

The proposed merger between Mediobanca and Monte Paschi di Siena (MPS) has become a high-stakes showdown between two visions of Italian banking: one anchored in disciplined valuation and stability, the other in aggressive consolidation and risk. As the July 2025 deadline approaches for critical regulatory approvals, the battle highlights a stark divide in strategic priorities—and investor risk tolerance.

Valuation: A 32% Discount or a Fair Deal?

At the heart of the dispute is a gaping valuation gap. MPS's offer to swap 25.33 of its shares for every 10 Mediobanca shares (equivalent to 2.533 MPS shares per Mediobanca share) is fiercely opposed by Mediobanca's board, which argues it undervalues the bank by 32%. Advisers to Mediobanca, including Centerview Partners and Goldman Sachs, estimate a fair exchange ratio of 3.71 MPS shares per Mediobanca share. This discrepancy stems from Mediobanca's higher market capitalization (€15.2 billion vs. MPS's offer valuation of €14.6 billion) and the latter's declining stock price, which has shrunk the implied premium to just 14% below Mediobanca's current share price.

MPS claims the merger would unlock €700 million in annual synergies by combining its retail banking network with Mediobanca's wealth management and investment banking strengths. But Mediobanca retorts that its standalone acquisition of Banca Generali—funded by a €6.5 billion stake sale in Assicurazioni Generali—already delivers €300 million in synergies with far less execution risk. “This isn't a merger of equals; it's a hostile bid that ignores our strategic independence,” fumed a Mediobanca director.

Regulatory Risks: A High-Wire Act for MPS

The merger's survival hinges on three critical milestones:
1. July 14–August 10, 2025: The European Central Bank (ECB) will assess MPS's Common Equity Tier 1 (CET1) capital adequacy. A failure could force MPS to raise more capital, which it cannot afford, and doom the deal.
2. August 20, 2025: Milan's investigation into MPS's 2017 €5.4 billion state bailout—which revealed accounting fraud—will conclude, potentially exposing the bank to fines exceeding €1 billion or leadership changes.
3. September 8, 2025: Mediobanca's shareholders vote. MPS needs at least two-thirds of shares but may lower the threshold to 35% if support falters.

MPS's history of instability looms large. Its 2017 bailout and subsequent reliance on state support have left it with a fragile capital structure. Even if the ECB greenlights the deal, MPS's governance problems—rooted in political interference and opaque decision-making—remain unresolved.

Shareholder Alignment: A Conflict of Interest

The merger's most intriguing twist involves MPS's key allies: Delfin (owned by the Del Vecchio family) and Caltagirone, which together hold 27% of Mediobanca. Though they support MPS's bid on paper, they privately oppose it due to governance risks and regulatory uncertainties. This creates a paradox: they could vote against a deal they publicly endorse, fearing long-term damage to Mediobanca's value.

Their conflicted stance underscores the broader dilemma: MPS's bid is a high-risk gamble for Mediobanca's shareholders, who benefit from the latter's current defensive profile. Mediobanca's 6.7% dividend yield, €334 million net profit in Q3 2025, and a shareholder payout plan of €5.7 billion in dividends and buybacks offer tangible rewards today—unlike MPS's “synergy-rich” future, which hinges on overcoming regulatory and execution hurdles.

Investment Implications: Safety vs. Speculation

For investors, the choice is clear: hold Mediobanca, avoid MPS until regulatory and financial risks are resolved.

• Mediobanca (MT): Its fortress balance sheet, strong fundamentals, and shareholder-friendly policies make it a defensive buy. The bank's dividend yield and buyback plans provide downside protection, while its standalone strategy reduces execution risk.
• Monte Paschi (MPS): A speculative play only for those willing to bet on a regulatory miracle. Until MPS clears the ECB's capital test, resolves the 2017 scandal, and secures shareholder buy-in, its shares remain a high-risk trade.

The merger's outcome will define Italy's banking sector's future: Will it prioritize scale-driven synergies or stability-focused specialization? For now, the latter appears the safer bet.

In a sector where reputation and regulatory trust matter most, Mediobanca's disciplined strategy—and MPS's lack thereof—will likely decide this clash. For investors, patience and prudence are rewarded.