By Valentina Za

MILAN (Reuters) -Italy’s UniCredit on Monday launched a surprise 10 billion euro ($11 billion) all-share offer for smaller domestic peer Banco BPM – one that comes as it also pursues a contentious deal for Germany’s Commerzbank.

The proposal, which offers 0.5% premium for Banco BPM shareholders, is not the first time UniCredit has set its sights on its rival with roots in Milan’s wealthy Lombardy region, an area where UniCredit’s presence is limited.

“With this acquisition of one of our historical targets, we reinforce our position in Italy,” UniCredit CEO Andrea Orcel, a veteran dealmaker who has led the bank since 2021, said in a statement.

Commerzbank shares fell as much as 7% at the start of trading in Frankfurt, while in Milan UniCredit shares fell about 1.5% and BPM shares rose nearly 5%.

Italy’s second-largest bank had previously readied a buyout offer for Banco BPM in 2022 just before the Ukraine conflict broke out.

UniCredit offered 0.175 of its common stock for each BPM share, valuing them at 6.67 euros each. That represents a premium of about 0.5% to Friday’s closing price or 15% to the day before the announcement of the Anima bid.

The offer for Banco BPM is independent of its proposed investment in Commerzbank, UniCredit said, noting discussions around a possible acquisition would need to wait for Germany to form a new government.

Orcel’s advances for Commerzbank have sparked a backlash due to political opposition to a takeover by an Italian lender that would lead to job cuts and expose Commerzbank to Italian sovereign risk.

The near 21% stake UniCredit has built in Commerzbank, in part with derivatives conditional on supervisory approval “remains an important investment with downside protection and substantial upside potential,” UniCredit said.

“So that is an investment for now. We can sit on it for a while. It will remain,” Orcel told a briefing.

The BPM Banco move took Commerzbank by surprise as management tried to figure out what it meant, according to two people familiar with the matter. One person familiar with the bank’s thinking said that while it could signal that a Commerzbank takeover was less likely, the move was hard to interpret.

The sources were not authorised to speak to media and declined to be identified.

The offer for Banco BPM comes after Italy’s third-largest bank this month bought 5% in bailed-out rival Monte dei Paschi (MPS), a move seen as potentially paving the way for an eventual combination of the two mid-sized lenders as the state pulls out of MPS entirely.

It also follows a 1.6 billion euros ($1.7 billion) buyout offer Banco BPM launched this month to gain full control of asset manager Anima Holding, as it seeks to boost net fees in the face of falling interest rates.

UniCredit said it had taken note of the Anima’s bid. Orcel has worked to boost fee income at UniCredit and make its profit less reliant on income from lending.

UniCredit said it expected deal with the Banco BPM, which must receive European Central Bank and antitrust approval, could be concluded by June 2025.

UniCredit is also waiting for ECB approval to buy up to 29.9% of Commerzbank.

BPM did not immediately respond to a Reuters request for comment. ($1 = 0.9542 euros)

(Reporting by Valentina Za in Milan, Additional reporting by John O’Donnell in Frankfurt and Shubham Kalia in Bengaluru; Editing by Abinaya Vijayaraghavan, Savio D’Souza and Edwina Gibbs)

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