Analysis: Germany Talks Tough but Has Limited Room to Halt UniCredit’s Advance on Commerzbank

By Christian Kraemer, Friederike Heine, and Emma-Victoria Farr

BERLIN/FRANKFURT – Andrea Orcel, the Chief Executive of UniCredit, has managed to rally Germany’s political landscape against his increasing stake in Commerzbank, the country’s second-largest bank.

The challenge for the frustrated German politicians is that their options to impede Orcel’s ambitions are limited, as he pursues what could be a transformative transaction within the European banking sector.

"Legally, we have no recourse. However, the government’s perspective undoubtedly holds significance," a source within the German government stated.

Chancellor Olaf Scholz, leader of the Social Democrats, condemned Orcel’s latest move as an "unfriendly attack" following UniCredit’s announcement that it had utilized derivatives to elevate its potential stake in Commerzbank to 21%.

Friedrich Merz, the leader of the Christian Democrats and a potential future chancellor, warned that a takeover would be detrimental to Germany’s banking sector, referencing the acquisition of HVB—a smaller Bavarian bank by UniCredit in 2005—which resulted in significant job losses.

With upcoming elections, German politicians are particularly concerned about maintaining jobs for Commerzbank’s 40,000 employees and the national oversight of a bank that plays a crucial role in financing small and medium enterprises, known as the "Mittelstand."

STRATEGY FOR DEFENSE

There are typically two approaches to resist such a takeover: mobilizing the shareholder base against UniCredit or employing legal mechanisms to prevent or postpone a deal.

However, German government sources indicated that since banks are overseen by the European Central Bank (ECB), laws designed to protect vital infrastructure do not easily apply to safeguarding Commerzbank.

The ECB has been advocating for more cross-border mergers to strengthen the eurozone’s banking system against international competition. Following a recent meeting, Portuguese central banker Mario Centeno emphasized the need for tangible progress in that area.

Some investors have urged Germany to adopt a broader perspective. "This poses a fundamental question for the German government: Will they opt for socialist control or embrace the free market?" remarked Cole Smead, CEO of an investment firm holding UniCredit shares. He further argued that prolonged indecision would increase the pressure on the German government, suggesting that once regulatory obstacles are navigated, Orcel might hold a more significant stake than the government.

COORDINATING THE OPPOSITION

Nonetheless, the German government retains some influence as a significant shareholder, holding a residual 12% stake in Commerzbank, as noted by Christoph Schalast, a mergers and acquisitions lawyer and professor at the Frankfurt School of Finance & Management.

"I find it hard to believe that UniCredit would attempt a hostile takeover against the wishes of Commerzbank’s board, shareholders, and employees," Schalast commented. He added that the management and supervisory boards of Commerzbank must create a strategy that garners backing from other major investors, presenting an alternative more appealing than a UniCredit acquisition.

Commerzbank’s supervisory board members have expressed strong opposition to a takeover, criticizing Orcel and indicating readiness for a prolonged contest.

At present, the responsibility lies with the ECB, which must evaluate UniCredit’s request to increase its ownership in Commerzbank to just below 30%, the threshold for triggering a mandatory takeover under German corporate law.

While the German government could exert informal pressure on Italy to obstruct the deal, an experienced mergers and acquisitions banker noted that its capacity to impede Orcel’s plans is quite limited.

Meanwhile, indications from Italy show an opposite sentiment, as Italian Foreign Minister Antonio Tajani commended UniCredit’s proactive approach within the internal market, reflecting the support for Orcel’s ambitions.