Monte Paschi’s Hostile Bid for Mediobanca: A High-Stakes Gamble in Italian Banking

The approval of a EUR13.19 billion capital increase by Banca Monte Paschi di Siena (MPS) on April 17, 2025, marks the opening salvo in one of Italy’s most consequential banking battles in decades. With shareholders greenlighting the move to fund a hostile takeover of rival Mediobanca, the deal has ignited debates over corporate governance, regulatory priorities, and the future of Italy’s financial sector.

A Relentless Pursuit of Scale

The capital increase, requiring the issuance of up to 2.23 billion new shares, is a bold maneuver for MPS, Europe’s oldest bank, which has long struggled with legacy bad loans and stagnant profitability. The target, Mediobanca—the “pride of Italian finance” and a pillar of investment banking expertise—represents a strategic prize. By merging, MPS aims to create a “third pole” in Italy’s banking landscape, challenging the dominance of UniCredit and Intesa Sanpaolo.

The deal’s approval hinged on securing a two-thirds majority of MPS’s total voting capital. With major shareholders rallying behind the bid, including the Italian Treasury (Mef) and institutional investors like Norges Bank, MPS narrowly crossed the threshold. Notably, Caltagirone Group upped its stake to over 9%, signaling confidence in the play. Yet dissenters, including proxy advisory firm ISS and smaller U.S. shareholders, warned of overreach and governance risks.

Government Endorsement and Market Skepticism

The Italian government’s refusal to invoke its “golden power”—a tool to block hostile bids—was a critical enabler. By backing MPS, Rome signaled its preference for consolidation in a sector still reeling from post-crisis reforms. “The Treasury’s support reflects a broader strategy to build a stronger banking system,” said one analyst, noting that MPS’s state-backed status likely eased regulatory qualms.

However, the market was less convinced. MPS shares fell 1.3% on the announcement, reflecting concerns over execution risk and dilution. Mediobanca, conversely, surged 4.24%, as investors bet on the bid’s inevitability.

Risks Ahead: Legal, Financial, and Political

The road to completion is fraught. Legal challenges are probable, given the bid’s hostile nature and Mediobanca’s likely resistance. Meanwhile, the ECB’s ongoing monetary policy tightening could strain MPS’s balance sheet, already under pressure from the capital increase’s dilutive effect.

Equally critical is the political climate. While Rome supports consolidation, EU antitrust regulators may scrutinize the deal’s impact on competition. “The ECB’s stance on bank capital requirements will be pivotal,” warned a banking analyst, noting that MPS’s Tier 1 capital ratio—already thin—could dip further post-merger.

The Stakes: A New Era for Italian Finance?

If successful, the deal would reshape Italy’s banking landscape, creating a combined entity with EUR300 billion in assets. Yet the risks are existential for MPS. A failed bid could destabilize its already fragile finances and erode investor confidence.

The data underscores the gamble:
- The EUR13.19 billion capital increase dwarfs MPS’s current market cap of EUR8.4 billion, implying significant dilution for existing shareholders.
- Mediobanca’s valuation at EUR12.5 billion suggests MPS is paying a 13% premium to current prices—a sign of desperation or ambition, depending on one’s view.

Conclusion: A Test of Fortitude

MPS’s bid is as much a test of managerial courage as it is a financial maneuver. With regulatory tailwinds and institutional support, the path forward is viable—but not guaranteed. The success hinges on Mediobanca’s shareholders accepting the exchange offer, which requires at least 50% of Mediobanca’s shares to participate.

History offers caution: Italy’s last major banking merger—UniCredit’s absorption of HVB in 2005—created a behemoth that struggled with integration. Yet MPS’s desperation is clear: without growth, it risks becoming a perpetual laggard in a consolidating sector.

For investors, the calculus is stark. The bid’s success could unlock value for MPS’s minority shareholders, but failure would amplify its vulnerability. As the ECB tightens monetary policy and Italy’s political landscape shifts, the next nine months will determine whether this gambit is remembered as visionary or reckless.

In the end, the battle for Mediobanca is less about spreadsheets and more about will—a will to redefine Italian banking’s future, even at the risk of its present.