Breakingviews – UniCredit spinoff offers €3bn reward


Italy’s largest bank UniCredit is pictured in downtown Milan September 12, 2013.

MILAN (Reuters Breakingviews) – The breakup of UniCredit could net its shareholders a €3 billion reward. Chief Executive Jean Pierre Mustier is accelerating plans to divest the €16 billion bank’s Italian assets from its German-focused overseas operations, Reuters reports. A spinoff could boost the stock by as much as 20%. Yields could be even higher in a deal with Commerzbank or BNP Paribas.

Even after a deep clean since Mustier became CEO in 2016, UniCredit’s stock has been weak. Italy’s second-largest bank, at 28% of its tangible book value, is only slightly higher than weaker, smaller domestic peers like Banco BPM and Banca Monte dei Paschi di Siena. Investors are unfairly penalizing UniCredit for its Milan location despite the fact that it generated around 60% of its revenue abroad last year. His Italian involvement also discourages foreign buyers and drives up financing costs.

Turning back the clock on UniCredit’s acquisition of Munich-based HVB in 2005 and creating two public companies would allow investors to evaluate each part more clearly. Without its European business, the Italian hull would trade more cheaply. But that would be more than offset by higher valuations for the rest — which would likely include operations in faster-growing Eastern European countries, as well as investment banking, Germany, and Austria — especially if listed in Frankfurt.

Let’s say the Italian company trades at about 25% of tangible book value, just above smaller domestic peers. With a likely book value of around €20 billion based on current share of group sales and Refinitiv estimates, it would be worth maybe €5 billion. The overseas companies’ return on investment of more than 4% in the first half of 2020 would indicate a market capitalization of at least 40% of their estimated book value of 34 billion euros. That’s 14 billion euros. The shareholders were left with two banks worth a total of 19 billion euros.

A spin-off could also provide Mustier with a springboard for deals. The merger of the new HVB with Commerzbank, for example, would lead to size and cost savings. Selling to a larger foreign player like BNP Paribas would command a control premium of perhaps 30%. It would be expensive and laborious. Mustier would also need support from his future leader, former finance minister Pier Carlo Padoan – who was appointed to office on Tuesday – and convince the Italian government. But the reward for investors is clear.

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