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Ask an investor if you can buy their shares for substantially less than the market price, and they will usually say no. Yet Andrea Orcel, boss of Italian bank UniCredit, has snagged a large chunk of German rival Commerzbank at below-market rates through a lowball offer of his bank’s stock. How he did it is a mystery, but the fact is that he has got what he wants.
The market is awash with ideas on how, exactly, Orcel secured nearly 18 per cent of Commerzbank’s shares, taking UniCredit’s total stake to just under 48 per cent. The German lender, for its part, said last month that tendered shares at that time had almost all come from UniCredit’s own banks and connected parties.
One possibility doing the rounds relates to “total return swaps” UniCredit set up with other banks. These would say that if Commerzbank shares rise, UniCredit receives payment equivalent to that increase or itself pays if the shares fall. The counterparty bank would want to hedge itself by buying physical Commerzbank stock so that it isn’t left out of pocket.
The clever part would come if UniCredit requested that the swap be based on “tendered” Commerzbank stock. In Germany, once a share is offered up to a takeover bid, it becomes a different kind of share for legal purposes. The bank might therefore pledge regular Commerzbank stock to UniCredit’s offer to create “tendered” stock that can back its swaps.
A flaw in that argument is that Commerzbank stock is thinly traded and tightly held, so banks might struggle to buy enough. But what if they borrowed, rather than bought, shares? That would explain why, over the course of this year, the portion of Commerzbank stock on loan has risen from 1 per cent to nearly 10 per cent, according to data from S&P Global.
These theories come with a catch: the banks would, on the face of it, risk losing money on their trade. Tendered shares ought to trade at a discount to the regular kind. Borrowed shares must be paid back. Of course, it’s possible that UniCredit agreed to cover any shortfall — though in that case, the real price of the additional stake wasn’t as low as it looks.
UniCredit could always argue that there is a simple explanation for why investors accepted an apparently ungenerous offer. Perhaps sellers reckoned the German bank’s share price might fall sharply if UniCredit failed, for example.
Either way, Orcel has secured enough Commerzbank shares to appoint the majority of the bank’s supervisory board and thus steer the bank’s future. His new hosts may not love that outcome. But if he can bring anything like the determination and financial nous that he has displayed in his M&A game, Commerzbank shareholders could still end up richer for it.
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