Dispute over UniCredit's takeover of Commerzbank intensifies ahead of deadline

Background: Commerzbank's role for the economy and small and medium-sized businesses

The intervention is rooted in Commerzbank's strategic importance for the financial center and the real economy. Commerzbank AG plays an important role in financing the German economy and Germany's small and medium-sized enterprises (Mittelstand). As a significant employer, it is also central to Frankfurt as a financial center. Both must be safeguarded in the future as well, according to the Finance Agency.

The German government, which holds just over 10 percent of Commerzbank, would as the largest single shareholder be directly affected by any share-exchange transaction. UniCredit had offered the federal government to convert its stake into UniCredit shares as part of a share exchange. The Finance Agency has now rejected this offer on the grounds that there is no adequate premium for the Commerzbank share.

Market reactions on the stock exchanges

On the stock exchanges, however, the shares of both banks reacted unevenly. The Commerzbank share temporarily gains 1.38 percent to 36.71 euros in XETRA trading. The UniCredit share is quoted 2.94 percent higher in Milan at 76.76 euros. While Commerzbank thus edged up slightly, UniCredit in Milan benefited from a more pronounced price jump.

From the German government's perspective, UniCredit is pursuing a takeover strategy classified as aggressive. Commerzbank itself had previously rejected the offer as well and insisted on its independence. The fronts between Frankfurt, Berlin, and Milan are thus hardened shortly before the end of the acceptance period.

Italy's major bank UniCredit had gradually expanded its takeover attempt over the past weeks and had secured a noteworthy stake in Commerzbank bit by bit. A successful share exchange with the German government would have enabled UniCredit to significantly expand its influence. With the rejection by the Finance Agency, this path is blocked for now.

Outlook: What could happen after the deadline

It remains unclear whether Commerzbank will in turn take legal or regulatory action against UniCredit's approach. Observers point to the role of BaFin, which as Germany's financial regulator is also involved in the process. The coming days are considered decisive for whether the offer ultimately fails because of the stance of the German government and Commerzbank.

All in all, it remains clear that the federal government is defending the status quo: Commerzbank's independence, the protection of the lender to the Mittelstand, and the preservation of Frankfurt's attractiveness as a financial center. For UniCredit, the public rebuff means that a swift agreement with the largest shareholder has moved far out of reach.

Commerzbank itself has meanwhile stressed that it wants to remain independent. A takeover by UniCredit would fundamentally call into question the corporate restructuring that the institution has driven forward in recent years. This is another reason the interministerial steering committee is backing the line taken by Commerzbank's management.

The outcome of the offer is also likely to have a signaling effect for other European bank mergers. Should UniCredit ultimately fail, this would be a clear sign that member-state governments actively intervene in takeover processes when strategic interests and employment are at stake.

The sources for this report are publications by the German government's Finance Agency as well as market data from XETRA trading in Frankfurt and the Milan stock exchange. The news agency Dow Jones Newswires first reported on the statement by the German federal authority.