Market Analysis

On Tuesday evening in Europe, investors grew increasingly uneasy as the German government's attempt to sell Commerzbank (ETR) shares appeared to be faltering. The sale, which seemed straightforward, encountered unexpected delays despite JPMorgan and Goldman Sachs beginning to take orders earlier that afternoon, according to sources familiar with the transaction and emails from the banks to investors, reviewed by Reuters. These sources requested anonymity due to the confidential nature of the sale.

It wasn't until the early hours of Wednesday that news broke of an unexpected development: all shares, valued at approximately 700 million euros ($771.3 million), had been acquired by a single buyer, with Goldman Sachs no longer involved in the sale.

Italy's UniCredit, led by CEO Andrea Orcel, emerged as the sole purchaser of the entire 4.5% stake after outbidding competitors. Additionally, UniCredit had quietly bought another 4.5% stake on the open market, making it one of the largest shareholders and paving the way for a potential merger with Commerzbank, which had already engaged Goldman Sachs as a defense advisor.

Some German officials were reportedly surprised by Orcel's move. However, there has been ongoing speculation about UniCredit’s interest in Commerzbank, given its surplus capital and its ownership of German lender HVB. European regulators have also supported consolidation in a sector struggling with low profitability.

Berlin's recent announcement of its intention to sell part of its 16% crisis-era stake in Commerzbank seemed to provide Orcel with the opportunity he had been waiting for. Mark Kelly, CEO of MKP Advisors, suggested that UniCredit’s actions were likely part of a well-coordinated strategy rather than an opportunistic move.

UniCredit declined to comment, and officials from JPMorgan and Goldman Sachs also refrained from discussing their roles in the transaction. According to a term sheet, UniCredit paid a 4.8% premium over Tuesday's closing price for the government’s stake. JPMorgan was required to accept the best offer to ensure a fair and transparent process, while Goldman Sachs had to withdraw from the transaction due to potential conflicts of interest and is now advising Commerzbank on defense strategies.

As the news emerged on Wednesday, Orcel approached Commerzbank management to explore potential merger discussions. UniCredit has expressed its intention to seek approval to increase its stake in Commerzbank beyond 9.9%.

"UniCredit’s next steps will be crucial, and the market will be watching to see if it raises its stake in Commerzbank above 9.9%," said Filippo Alloatti, Head of Financials (Credit) at Federated Hermes (NYSE).

Other European banks, including Deutsche Bank, may also be considering their strategic options, although Deutsche Bank declined to comment. In response, Commerzbank quickly convened a board meeting to discuss strategies for remaining independent and to prepare defenses against a potential takeover by UniCredit.

Germany may pause any further share sales after being caught off guard, and both the bank and the government need to reassess the new situation. Trade unions are also opposing a merger, citing concerns about potential job losses. Commerzbank's shares rose by 16.6% to 14.69 euros in Frankfurt, while UniCredit's shares increased by 0.2% in Milan.

Paraphrasing text from "Reuters" all rights reserved by the original author.