UniCredit SpA; Market Cap (as of 03/10/2014): €35.45bn

Santander SA; Market Cap (as of 03/10/2014): €87.68bn

On September 22, UniCredit, the largest Italian bank by assets, and Santander, the largest bank in the Eurozone by market value, are in talks to merge their asset management units to create a European powerhouse with more than €350bn in assets under management and operations in the Americas, Europe and Asia. If a final agreement is reached and the merger between UniCredit’s Pioneer Global Asset Management and Santander Asset Management unit will be formed, both banks will own about a third each of the new entity. The remaining third of the combined entity will be owned by the private equity funds Warburg Pincus and General Atlantic, which are already partners in Santander Asset Management since 2013. The newly formed entity, which will retain the Pioneer name, will enhance its international presence and will be among the top 30 fund managers in the world.

The transaction was announced by UniCredit’s CEO Federico Ghizzoni who stated that Santander had come with the best offer, thus surpassing the other bidders. In particular the other names of the other bidders that were disclosed are CVC Capital Partners together with Singapore’s GIC, as well as Advent International. Santander offer was considered superior in both financial and strategic terms. Indeed, people familiar with the matter said that Santander values Pioneer in the range of €2.7-3.0bn (10-11x E2014 Ebitda, ca. €270m); in addition, there are potential synergies linked to the complementarity of the distribution channels with ca. 21,000 branches across Europe, US and Latin America.

For UniCredit, the loss of control over Pioneer, which manages assets worth €186bn, is the latest of a string of disposals. In fact, a major step in its asset sale strategy was undertaken in July, when UniCredit completed the 34.5% IPO of its online bank Fineco, thus receiving €774m through the share sale. In the same month it also sold its 81.4% stake in DAB Bank, the German online broker, to BNP Paribas for €354m. These disposals, which are part of a strategic plan aimed at tripling Unicredit’s profit by 2018, allowed the bank to strengthen its capital position in light of the prolonged recession in Italy and of the European sanctions against Russia. In fact, both Italy and the CEE region are a key profit generating area for the bank.

According to Federico Ghizzoni the tie-up will add some 20 to 25 basis points to UniCredit’s core capital ratio. This in turn will be beneficial in view of the stress tests that the European authorities are finalizing on the largest European lenders. In addition, the deal structure will allow the new entity to have access to both Banco Santander’s and UniCredit’s distribution networks. As for Banco Santander, such a strategic decision might be as well a way to increase its share of profits arising from the asset management business. Quoting Nuria Alvarez, a financial analyst at the Madrid-based brokerage firm Renta 4 “It makes sense for Santander to keep growing the asset management business in collaboration with other partners at a moment when growth rates are steadily picking up.”

At announcement UniCredit shares decreased 2.32% while Banco Santander shares fell 1.18%.

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