UniCredito to Buy HVB in $24.5Bln Bank Deal

MILAN, Italy / MUNICH, Germany -- Italy's UniCredito has agreed to buy HVB Group of Germany in what would be Europe's biggest-ever cross-border banking takeover deal, worth nearly 20 billion euros ($24.5 billion).

"We are creating the first truly European bank," HVB chief executive Dieter Rampl said Sunday after his bank's supervisory board approved the deal to form the region's ninth-biggest bank.

The takeover will fuse the two banks' big investments in central Europe and in their affluent domestic markets.

It will be run by UniCredito CEO Alessandro Profumo, who will retain that post at the enlarged bank. Rampl will be chairman.

UniCredito said it would offer five new shares for each one in HVB, valuing the German bank at 15.4 billion euros, plus shares or cash for stock in Bank Austria Creditanstalt and in BPH in Poland, both part of HVB group.

Sources close to the talks previously said UniCredito would offer five of its shares in exchange for one HVB share and the stock prices have aligned themselves into roughly that ratio.

The takeover, if completed, will be bigger than the 2004 acquisition by Spain's Santander Central Hispano of Abbey National in Britain.

In addition to HVB's central European assets, UniCredito stands to gain its retail network in Bavaria and northern Germany, a corporate and real estate loan book and fund arm Activest.

In a statement, the two banks said the takeover plan foresaw annual pretax synergies of nearly 1 billion euros by 2008.

The acquisition would have a neutral effect on UniCredito's earnings per share in 2006 and would be positive after that, with EPS growing by an average of 26 percent in 2005-07.

"The expected return on equity and synergies are very high. If UniCredito manages to meet these targets it will create a great bank," said Riccardo Lagorio, head asset manager at Banca Profilo in Milan.

"The risk is that the situation at HVB is worse than people thought," he said.

HVB has set aside 5.7 billion euros for bad loans in the past three years alone, and some investors still believe more unpleasant surprises are in store. UniCredito must also show it can hit its cost-cutting targets.

While job losses were not mentioned Sunday, a source close to the deal said Saturday that job cuts would run into the "high single-digit thousands."

The two groups' combined employee base totals over 127,000.

"There is a lot to do for UniCredito and Mr. Profumo. There will be challenges especially in Eastern Europe where there is a lot of overlap between the two banks," said Thomas Koerfgen, head of equity management at SEB Invest, an HVB shareholder.

Sunday's meetings of UniCredito's board and the supervisory board of HVB lasted over seven hours, partly because staff representatives in Germany wanted clarification on a five-year guarantee to keep HVB's German business intact, a source familiar with the situation said.

Another source said HVB's supervisory board did not give unanimous support to the deal.