Intesa Weighs Generali Deal That Would Reshape Italy Finance

  • Messaggero reports bank eyeing $16 billon cash-and-stock bid
  • Intesa also mulls ‘international partnerships’ for growth

Intesa Said to Consider All-Stock Generali Takeover Bid

Intesa Sanpaolo SpA said it’s considering a merger with Assicurazioni Generali SpA, a deal that would reshape Italy’s financial industry by combining its second-biggest bank with the country’s largest insurer.

“Possible industrial combinations with Assicurazioni Generali are currently being examined by the bank’s management,” Intesa said in a statement late Tuesday. “The bank is interested in industrial growth in the areas of asset management, private banking and insurance in synergy with its banking networks, including through possible international partnerships.”

Representatives for Generali and Allianz declined to comment on Intesa’s statement, which follows Italian media reports of an offer in the works that would split the insurer’s operations with Germany’s Allianz SE. Generali’s stock surged, while Intesa’s slumped on skepticism from analysts and investors about the merits of a merger.

The main option under consideration is an offer of 3 billion euros ($3.2 billion) of cash and 12 billion euros of stock for 60 percent of Generali, il Messaggero reported on Wednesday. Generali has a market value of about 24 billion euros, more than half that of Intesa.

Generali rose as much as 3.8 percent in Milan and was trading 1.8 percent as of 10:16 a.m., following gains of 3.9 percent and 8.2 percent in the previous two days. Intesa fell 3.1 percent, extending losses this week.

Pros and Cons

With 370 billion euros of assets under management, Intesa is targeting more lucrative products to help counter low interest rates. An acquisition may help Chief Executive Officer Carlo Messina develop its non-life business and expand abroad through Generali’s network.

Generali oversees about 500 billion euros of investments, largely om fixed income, with the remainder in shares, real estate and cash. About 80 percent of the portfolio is dedicated to insurance asset management, with the rest comprising investments on behalf of non-insurance customers.

For more on the business logic of a merger, click here.

While analysts say the deal would have pros and cons, many question the feasibility of a merger between a bank and an insurer. 

“The combination of a bank with an insurer is not easy given different distribution, risk profile, regulation and accounting, plus antitrust constraints,” Anna Maria Benassi, head of Italian equity research at Kepler Cheuvreux wrote in a note Wednesday. “However, the combination in asset management and private banking, as well as cost savings in central functions and procurement, is more straightforward and synergic.”

The so-called bancassurance model saw one of its most prominent failures in the 23 billion-euro takeover of Dresdner Bank by Allianz SE in 2001. Europe’s biggest insurer handed the lender to Commerzbank AG in a fire-sale during the financial crisis after losses at Dresdner’s investment bank threatened the insurer’s financial stability. Other banks and insurers including Citigroup Inc., Credit Suisse Group AG and London-based Prudential Plc abandoned the dual-industry approach as well.

A tie-up between Intesa and Generali would face many regulatory hurdles, above all possible conflicts arising from different systems of supervision, each with its own targets and goals.  The European Central Bank oversees banks, conducting inspections, reviewing procedures and setting requirements for capital and liquidity based on bank-specific risks. The European Insurance and Occupational Pensions Authority, or Eiopa, supervises insurers, including compliance with the European Union’s new Solvency II risk-capital rules.

"The traditional insurance has limited strategic rationale in our view, also in light of regulatory headwinds in the future,” Carlo Tommaselli, an analyst at Credit Suisse Group AG, wrote in a note. 

An Intesa-Generali deal may also increase the link between sovereign borrowers and banks. Intesa is already the biggest owner of Italian government bonds with a portfolio of 90 billion euros. Generali holds about 70 billion euros of them.

Investor Doubts

“Though we will keep an open mind, this rumored merger seems inconsistent with the company’s previously announced strategic plans,” David Herro, the Chicago-based chief investment officer at Harris Associates, said before Intesa’s statement. He said his company owns about 2.8 percent of the bank.

Consob, the Italian stock market regulator, is gathering executives from Intesa and Generali on Wednesday and Thursday, people with knowledge of the matter said before Intesa’s statement. Executives from UniCredit SpA, Italy’s largest bank, were summoned amid reports their firm may be involved, the people said.

Generali purchased 3 percent of Intesa on Monday, a measure that would prevent the bank from accumulating voting rights in the insurer without making a bid for majority control. Intesa may not immediately make a move after Generali’s stock purchase complicated the plan, a person said, adding that a lack of clarity on bank capital rules may also hold up any offer.

UBS Group AG is advising Intesa on a possible deal with Generali, the person said. Another adviser such as Goldman Sachs Group Inc. may be added, Messaggero reported.

Political Motive

The deal may be a politically driven initiative to create an Italian financial champion to fend off a foreign predator for Generali, according to Fabrizio Spagna, managing director at Axia Financial Research in Padua, Italy. French insurance giant Axa SA has also been mentioned in the Italian press as an interested party.

Buying a large competitor isn’t part of Axa’s strategy, CEO Thomas Buberl said at a conference on Wednesday, according to dpa-AFX. That reiterates what he said in October. An Axa spokesman declined to comment by phone.

“It’s hard to justify such a deal on an industrial perspective, considering it will add complexity and may erode capital,” Spagna said by phone.

Generali has 76,000 employees and operates in more than 60 countries. Like other European insurers, it’s struggling to boost profitability as investment returns fall and competition increases. Philippe Donnet, who became chief executive officer in March, is cutting costs and focusing on cash generation and the retail business to improve returns.

Since Donnet took over, investment chief Nikhil Srinivasan has left the company and will be replaced by Tim Ryan. Generali may name head of corporate finance Luigi Lubelli as chief financial officer, replacing Alberto Minali, Messaggero reported.

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