Italy's UBI weighs tie-up with Monte dei Paschi, other deals to fend off Intesa - sources

By Pamela Barbaglia

LONDON (Reuters) - Italy's UBI Banca <UBI.MI> is looking at alternative merger plans to fend off an unwanted bid from Intesa Sanpaolo <ISP.MI> and may explore a takeover of Monte dei Paschi <BMPS.MI> as part of its defence, two sources told Reuters.

The mid-sized bank aims to become an acquirer of weaker rivals, rather than a target, and has hired Credit Suisse <CSGN.S> to outline its defence strategy, the sources said, speaking on condition of anonymity because the matter is confidential.

Its target list includes ailing Tuscan bank Monte dei Paschi which was rescued by Rome in 2017 in an 8 billion euro bailout, the sources said.

UBI's boss Victor Massiah has long been in favour of a possible merger with the Tuscan lender, the sources said, provided that the Italian state finds a solution for the bulk of Monte dei Paschi's problem loans and legal risks.

The deliberations are at an early stage and UBI has yet to decide if it wants to pursue an alternative deal to Intesa's 4.9 billion euro ($5.29 billion) bid, the sources said.

UBI and Credit Suisse declined to comment while Monte dei Paschi was not immediately available.

European and national policy makers want consolidation to strengthen Italy's beleaguered banking sector and tackle sub-zero interest rates, low profitability and high costs.

Intesa said on Feb. 20 that its approach would answer regulatory pressures for lenders to join forces and would create a "strong champion."

But its all-paper takeover proposal - which landed just before midnight on Feb. 17 local time - was not coordinated with UBI beforehand.

In its response on Feb. 19 UBI raised questions over Intesa's ability to pull it off, saying the deal had to go through a "complex authorisation process" and nothing could be taken for granted.

KINGMAKER

Massiah wants to play kingmaker in Italy's fragmented banking sector and is expected to explore other merger routes and hire at least one more bank to help him forge another deal, the sources said.

If he decides to approach Monte dei Paschi, he would also need to win shareholder approval - as required by Italian finance regulation - while the Intesa tender offer is ongoing, another source said.

This means he would need to persuade investors that a tie-up with Monte dei Paschi would unlock better returns and synergies than those outlined by Intesa.

Italy's Treasury is working to rid Monte dei Paschi - whose boss Marco Morelli is set to leave in April - of most of its soured debt to make it a more attractive merger partner. The government has been taken aback by Intesa's surprise move, sources have said.

Other merger options may involve a deal between UBI and Italy's third biggest bank Banco BPM <BAMI.MI>, the sources said, but the prospect is seen as less appealing for Massiah who would lose the top job.

Banco BPM declined to comment.

Meanwhile a group of UBI's investors holding 18% of the bank's share capital dismissed Intesa's bid as unacceptable.

Its offer values UBI shares at 4.254 euros each, a 22% premium to UBI's closing price on Monday.

The Turin-based bank has set a minimum 66.7% acceptance threshold and is counting on institutional investors that own more than 50% of UBI's capital tendering their shares. It has reserved the right to lower the minimum threshold to 50% plus one share.

(Reporting by Pamela Barbaglia in London; additional reporting by Valentina Za and Andrea Mandala in Milan; editing by Susan Fenton)