Banca Ifis bids for illimity as Italy's banking M&A heats up

By Valentina Za and Giulia Segreti

MILAN (Reuters) -Italy's Banca Ifis on Wednesday made a 298 million euro ($309 million) surprise offer in shares and cash for rival specialty lender illimity, to bulk up in a competitive market.

The bid proposal steps up the pace of consolidation in Italian banking, and shows that unsolicited offers, traditionally rare in the finance industry, are gaining ground. Italy's No.2 lender UniCredit has made a bid for smaller rival Banco BPM, which has rejected the approach as a way to thwart its own bid for fund manager Anima Holding.

Illimity had no immediate comment.

Both Ifis and illimity specialise in financing small- and medium-sized firms. Ifis also runs an impaired loan recovery business, an activity which illimity is phasing out.

Ifis will pay 14.14 euros in cash and a newly issued share for every 10 illimity shares tendered - valuing each share at 3.55 euros based on Tuesday's closing prices.

The 5.8% premium is above the 0.5% UniCredit has offered for BPM and below the 8.5% premium BPM is offering for Anima.

Ifis expects to launch the bid in June following regulatory approvals, and aims to secure at least 67% of illimity to delist it.

By 1114 GMT shares in illimity were up 10.5% at 3.74 euros, a sign that investors are betting on a sweetener. Venice-based Ifis lost 1%.

Illimity's shares lost 40% in 2024, trading at a 70% discount to book value. Ifis shares gained one third last year raising its market capitalisation above 1.1 billion euros.

Italy's bank sector rose 50% over the same period, which has reduced the median price-to-book discount to 10%.

Ifis CEO Frederik Geertman said the bid price was fair.

"We stand by this offer for now," he said, adding illimity shareholders would benefit from "generous" dividend payments, given Ifis' strong track record on payouts.

He forecast a profit of more than 250 million euros in 2027, helped by 75 million euros a year in pre-tax benefits from the merger, of which two thirds would be from cost cuts.

Ifis's 2024 net profit target stands at 160 million euros. Illimity's nine-month profit was 31 million euros.

Illimity is a digital-only, cloud-based bank founded by veteran Italian banker and former minister Corrado Passera with backing from former Barclays CEO Bob Diamond. The bank debuted on the Milan bourse in March 2019 at 7.3 euros a share. 

The share price has fallen from late 2021 highs of nearly 14 euros as illimity overhauled its business model and slimmed down its bad loan operations. 

Italy's bad loan market, Europe's biggest, has dried up as banks' credit quality improved. Since 2021, tighter rules have heightened the challenge for debt recovery specialists.

In November, illimity agreed to sell a controlling interest in its technology assets to private equity firm Apax.

Ifis estimated illimity integration costs at 110 million euros, which would be partly covered by a capital boost generated by buying the bank at a discount to book value.

Ifis' controlling shareholder La Scogliera, the holding company of Italy's Furstenberg family, will own 45% of the combined entity if the offer is fully successful. La Scogliera currently holds 50.5% of Ifis.

($1 = 0.9656 euros)

(Editing by Jason Neely, Tomasz Janowski and Jane Merriman)