By Elena Vardon and Margot Patrick

Italy's Monte dei Paschi launched a near-$14 billion offer to buy counterpart Mediobanca, a fresh twist in the consolidation of the country's crowded banking market.

The unsolicited approach shows how Monte dei Paschi, still partly owned by Rome after a bailout, has revived. Formally called Banca Monte dei Paschi di Siena, it is widely known as the world's oldest bank, founded in Siena in 1472.

It was long a problem child, hamstrung by poor lending decisions, mismanagement and political interference. In 2017, the government took control, injecting 5.4 billion euros to keep it afloat.

"We aim for a new national champion, with two excellent brands that we want to protect and further enhance," said Monte dei Paschi's chief executive, Luigi Lovaglio.

Prime Minister Giorgia Meloni and her officials have repeatedly said they would like sixth-placed Monte dei Paschi to become the country's third-largest bank by assets after Intesa Sanpaolo and UniCredit. The latter is bidding for yet another Italian bank, Banco BPM, and is also pursuing Germany's Commerzbank.

Combining with the target, known in full as Mediobanca Banca di Credito Finanziario, would add its investment-banking heft and wealth-management business to Monte dei Paschi's strength in retail banking. The merged lender would be Italy's third-largest by assets.

Europe's banks have been banding together to cut costs and improve profits in a lackluster economy, sometimes meeting fierce political and business opposition. The region hosts thousands of banks, many of them tiny, and is still largely fragmented across borders.

In Italy, the number of banks has almost halved since the eurozone crisis began about 15 years ago, to around 400, but they still operate around 20,000 branches, a comparatively large tally given the size of the country.

The bid puts a spotlight on the heirs of Leonardo Del Vecchio, the late eyewear billionaire who revived Ray-Ban sunglasses. The family's holding company, Delfin, took a stake last year in Monte dei Paschi in a government share sale, and is the biggest shareholder in Mediobanca.

Mediobanca considers the approach hostile, a person familiar with the matter said. While there had been rumors in Italy of a potential approach, the banks weren't in contact about a possible deal before the tender-offer announcement, the person said. Mediobanca's board hasn't made any public recommendation to shareholders yet.

The target has a smaller asset base, but a larger stock-market value. As of Thursday's close, Mediobanca's market capitalization was nearly $13 billion, compared with slightly over $9 billion for Monte dei Paschi, according to FactSet.

Mediobanca was central to corporate Italy's development after World War II, with overlapping shareholdings in major companies. That gave it power in boardrooms and it became known as the pre-eminent host of the so-called salotto buono, or drawing room, where Italy's elite meet privately to thrash out deals. It remains an influential adviser to Italian business.

The all-stock offer is worth EUR13.3 billion, or some $13.86 billion.

Mediobanca shareholders would get 2.3 new shares in Monte dei Paschi for every share they own. That values Mediobanca at just under EUR16 a share, or a 5% premium based on Thursday's closing price.

Monte dei Paschi touted a range of financial advantages. A merged group could make faster use of some EUR2.9 billion of tax assets built up due to earlier losses, and could reap EUR700 million a year in financial benefits from higher revenue, cost cuts and cheaper funding.

Under Lovaglio, Monte dei Paschi has turned a corner in the past three years. The government's 11.7% stake wouldn't affect the deal, the CEO told analysts.

Shares in Mediobanca jumped nearly 5% on Friday morning, while Monte dei Paschi stock sank by almost 8%.

-- Ben Dummett contributed to this article.

Write to Elena Vardon at elena.vardon@wsj.com and Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

January 24, 2025 07:46 ET (12:46 GMT)

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