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UPDATE 3-Generali aims to cement home market leadership with $1.4 bln Cattolica bid

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MILAN, May 31 (Reuters) - Italy’s biggest insurer Assicurazioni Generali on Monday said it would launch a 1.17 billion euro ($1.4 billion) buyout offer for smaller rival Cattolica to further strengthen its domestic market leadership.

Italy’s insurers had been expected to join a consolidation process in the country’s financial industry where Intesa Sanpaolo took over rival lender UBI last year to build a banking and insurance giant.

In another surprise move, last week Italy’s second-biggest insurer UnipolSAI, which is working to expand its distribution network, raised its stake in small bank Popolare di Sondrio.

Generali had first moved on Cattolica last year, coming to its rescue with a 300 million euro ($366 million) investment after supervisors told the Verona-based insurer to bolster its finances.

Buying a near 24% stake, Generali became the single largest investor in Cattolica, relegating Warren Buffett’s Berkshire Hathaway to second place when one excludes a 12.3% holding held by Cattolica itself.

To gain full control, with the goal of taking Cattolica private, Generali is offering 6.75 euros a share, equivalent to a 15.3% premium to Cattolica’s closing price on Friday.

Cattolica’s shares surged 15% on Friday after it unveiled better-than-expected earnings. They had jumped more than 5% earlier in the week on UnipolSai’s move, which traders said put pressure on Generali.

By 0953 GMT on Monday Cattolica shares were up 12.5% at 6.81 euros each, slightly above the bid price.

Cattolica declined to comment on the offer which its board will have to provide an official opinion on. Two people familiar with the situation said Generali’s move was not perceived as hostile.

At a meeting early on Monday, Generali said its board had unanimously voted in favour of the bid, confirming what sources had told Reuters.

Generali has 2.3 billion euros left to use for acquisitions under its current business plan to end-2021 and is under pressure by some of its shareholders to expand. The company recently lost out to Germany’s Allianz for assets in Poland.

The takeover is also seen as keeping Cattolica from falling prey to foreign insurers which may seek to grow in Italy. The country lags other developed economies on the insurance front partly due to its generous healthcare system and tightly-knit social structure.

The takeover will allow Generali to displace Bologna-based UnipolSAI as Italy’s largest player in the non-life sector.

Generali will also strengthen its presence in the life business - where it faces growing competition from Intesa and the national postal service Poste Italiane.

Generali, which like Cattolica is based in Italy’s wealthy north east, said the tie-up would yield benefits of more than 80 million euros a year before taxes, while it estimated integration costs at 150-200 million euros over the next four years.

Generali said the offer, which it expects to conclude by the end of the year, was conditional on it gaining control of at least 66.67% of Cattolica, a threshold it reserved the right to lower to 50% plus one share.

Rothschild, Mediobanca and Bank of America are advising Generali. ($1 = 0.8199 euros) (Additional reporting by Claudia Cristoferi and Giulia Segreti; Editing by Mark Potter and Jane Merriman)

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