July 17, 2020 / 10:13 AM / a month ago

UPDATE 2-Intesa ups bid for UBI by 18% with cash sweetener

* To offer 0.57 euros on top of 1.7 Intesa shares

* UBI investors accounting for 18% of capital back bid

* Intesa says profit goals unaltered (Adds background, details)

By Valentina Za and Andrea Mandala

MILAN, July 17 (Reuters) - Italy's Intesa Sanpaolo on Friday raised its bid for rival UBI Banca by 18%, adding a cash sweetener to secure investor backing for its plan to create the euro zone's seventh-largest banking group.

In mid-February, just before the novel coronavirus struck Italy, Intesa announced an all-paper exchange offer for UBI, targeting the healthiest among second-tier rivals in a push to drive profits through cost cuts.

UBI has rejected the bid as too low. The deal, one of Europe's biggest banking deals in a decade, has also met resistance from local UBI investors comprising many small business owners in Italy's industrial Lombardy region.

Intesa said it would pay up to 652 million euros ($746 million) to offer UBI shareholders 0.57 euros in cash in addition to 1.7 new Intesa shares for each stock tendered, valuing Italy's fifth-largest bank at 4.2 billion euros ($4.8 billion).

Intesa ruled out the changes could affect profit and dividend goals for the combined group.

Chief Executive Carlo Messina said the improved offer would support the areas hardest hit by the coronavirus pandemic where UBI is rooted.

"We have decided to pay the closest attention to the difficult situation of these communities to avoid divisions ... among stakeholders ... who have backed the bid and those who have opposed it," he said.

On Friday, a group of core UBI shareholders dubbed Sindacato Azioni UBI Banca and two charitable foundations which are among the bank's top investors - holding in aggregate nearly 18% of UBI - announced they were in favour of Intesa's offer.

In unveiling support for the bid in a newspaper interview, the Sindacato head Franco Polotti said he was confident Intesa would improve its offer.

The two banking foundations belong to the CAR investor group which had been one of the bid's staunchest opposers.

The CAR front had begun to crack earlier this week when another member, Cattolica Assicurazioni said it would tender its 1% stake.

A take-up of 50% of UBI's capital plus one share is necessary for the bid to succeed but acceptance of 66.7% would guarantee Intesa controls extraordinary shareholder resolutions.

"To the extent that the sweetener is likely to bring hold-out shareholders on board and avoid a messy situation whereby Intesa only achieves a modest majority stake then the move is likely to be viewed as 'worth it'," Jefferies said in a note.

Take-up stands at 3.9%. The offer runs until July 28.

A large majority would make it easier for Intesa to sell 532 branches as it promised to do to win antitrust approval.

UBI on Friday said profit goals for the new group could suffer if Intesa were forced to sell its own branches instead of UBI ones.

$1 = 0.8743 euros Editing by James Mackenzie and Chizu Nomiyama

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