By Valentina Za and Giuseppe Fonte

MILAN (Reuters) - UniCredit CEO Andrea Orcel has been drawing up plans to take over Banco BPM for years and was almost ready to pull the trigger, two sources close to the matter said.

But instead of being able to choose the right moment, UniCredit had to rush out a 10 billion euro bid when Italy's third-largest lender made its own M&A moves, putting Orcel's dealmaking reputation on the line.

UniCredit, which was already facing headwinds in its pursuit of Germany's COMMERZBANK-RESULTS-6a9eabc8-8eba-4148-aa56-8c955a2d57b3>COMMERZBANK-LAYOFFS-a8b75e55-254b-40e8-9290-ad5b828929db>COMMERZBANK-RESULTS-6a9eabc8-8eba-4148-aa56-8c955a2d57b3>COMMERZBANK-UNICREDIT-e68bffe8-949f-4244-b8ab-76fcfffe3e84>Commerzbank, declined to comment.

BPM's shares leapt 12% in the week between announcing a 1.6 billion euro ($1.7 billion) bid to gain control of fund manager Anima Holding and that it had bought 5% of Italy's Monte dei Paschi di Siena (MPS).

That raised the prospect of a tie-up between BPM and MPS that would see Italy's second-biggest bank sidelined in domestic M&A, forcing Orcel's hand.

On Nov. 22, he told a London conference his COMMERZBANK-RESULTS-6a9eabc8-8eba-4148-aa56-8c955a2d57b3>COMMERZBANK-LAYOFFS-a8b75e55-254b-40e8-9290-ad5b828929db>COMMERZBANK-RESULTS-6a9eabc8-8eba-4148-aa56-8c955a2d57b3>COMMERZBANK-UNICREDIT-e68bffe8-949f-4244-b8ab-76fcfffe3e84>Commerzbank chase was stuck and he would wait for a new government in Berlin.

Just three days later, UniCredit informed Italy's market regulator before trading opened that it had launched an all-share buyout offer to BPM shareholders.

Orcel has long coveted BPM's position in Italy's wealthy Lombardy region, where UniCredit is weaker, but had baulked at the M&A premium in its shares, a person with knowledge of his thinking told Reuters.

Now he was offering a 15% premium to BPM's pre-Anima bid share price, but almost no premium over the share price before UniCredit's bid. BPM said this undervalues the bank and its shares have risen to around 15% above UniCredit's offer price.

"UniCredit has opened up two fronts, both very complex. The market is clearly saying that the Banco BPM deal is not going through at the price offered. As time passes, the price the market demands gets more expensive," said Bocconi University banking professor and SDA Bocconi dean Stefano Caselli.

Orcel has signalled he could offer BPM shareholders some cash and would sit down with 'industrial' investors starting with French bank Credit Agricole.

"Under the leadership of one of Europe's best known M&A bankers, UniCredit has to succeed on one of the two fronts," Caselli said, adding: "That requires a bold top up of the offer. UniCredit has the cash to pay up and it just should, walking away from both deals is not an option as things stand."

OUT OF FAVOUR

Members of Italy's conservative government oppose Orcel's proposal as it derails plans to join BPM with MPS in order to forge a strong rival to UniCredit and market leader Intesa Sanpaolo.

Orcel has been out of favour in Rome since he snubbed a chance to buy MPS from the state in 2021, deeming as insufficient the billions of euros he was offered to offset potential risks and the impact on UniCredit's capital reserves.

Meanwhile, BPM's biggest shareholder Credit Agricole, which partners with both BPM and UniCredit to sell its products, last week strengthened its hand by lifting its BPM stake to 15%. It could raise that to 19.99% but has ruled out a full takeover and has Rome's informal blessing, sources have told Reuters

The French bank became BPM's biggest shareholder in 2022 after an aborted UniCredit bid for BPM. In a sign of possible frustration, UniCredit's chief spokesperson warned BPM investors on Saturday against Credit Agricole's strategy in Italy or a BPM-MPS merger. The LinkedIn post was later cut, removing the address to BPM shareholders.

With Italian takeover rules limiting a company's ability to thwart a bid, BPM is examining how much leeway it has.

Meanwhile, Orcel, who is sitting on 6.5 billion euros in excess cash, has options to try and convince BPM shareholders their future is better with UniCredit.

But time could work against UniCredit, with a rising BPM share price putting pressure on Orcel's pledge to his shareholders to ensure M&A deals return at least 15%.

Time can also play into Rome's hands.

Although the government has no power to block the BPM bid, sources told Reuters the approval Orcel needs under investment screening rules could require a long wait, which would tie UniCredit up in the process for longer than it would like.

($1 = 0.9521 euros)

(Writing by Tommy Reggiori Wilkes; Editing by Alexander Smith)