Top officials in Berlin were not informed in advance of the invitation to UniCredit to bid for the German government's stake in Commerzbank, according to three people familiar with developments, a move that opens the way for a full takeover by the Italian lender.
Bankers at JPMorgan Chase, which advised the government on the sale of the 4.5 percent stake, invited the Milan-based bank to participate, giving the impression that Berlin welcomed its interest, the sources said.
The auction on Tuesday allowed UniCredit to acquire a 9 per cent stake without any prior notice – which could have pushed up the price.
The sudden move to become Commerzbank's second-largest shareholder – behind the government with the remaining 12 percent – stunned the German establishment, sparked public opposition to the sale of a strategic asset and put Berlin in an awkward position ahead of next year's federal elections.
Before this month, Berlin had repeatedly signaled to UniCredit and Commerzbank's European rivals that it was not interested in selling them.
Instead, it wanted to sell its stake in smaller tranches to financial investors, according to people familiar with the discussions, but EU bailout rules prevented it from discriminating against strategic bidders.
UniCredit did not approach the government about a possible tie-up with Commerzbank between Berlin’s announcement of the cut in its stake and the auction, people familiar with the matter said.
But people familiar with UniCredit's thinking said it had expressed an interest in buying shares to German government representatives before the auction, and that the size of the stake and the lack of special rights attached to it meant the bank was a financial investor rather than a strategic one.
The Italian bank, headed by veteran dealmaker Andrea Orcel, had acquired a 4.5 percent stake through derivative transactions by the time of the auction on Tuesday, which was below the disclosure threshold.
Senior officials in Berlin were told early on Tuesday night, early in the process, that UniCredit was bidding and already owned a stake.
People familiar with the move told the FT that Berlin has launched a review into the events and an investigation into who was responsible for the decisions.
“At the time book building was irrevocably started, the Finance Ministry was not aware that UniCredit held additional shares in Commerzbank,” the ministry told the Financial Times.
The ministry said Germany's Federal Finance Agency, which is responsible for the sale, learned of the existing stake shortly before the auction closed. The ministry does not oversee the day-to-day decisions of the Frankfurt-based finance agency.
“In such a non-discriminatory process [accelerated bookbuilding]”Such information cannot have any effect on the allotment of shares,” the ministry said. The shares will be awarded to the highest bidder.
People familiar with UniCredit’s situation said its existing stake was disclosed early in the process.
“When we bought it, the German government was well aware that our stake was 4.5 percent. Frankly, they were at least neutral on the idea of us increasing the stake to 9 percent,” Orcel told Bloomberg TV on Thursday.
People familiar with Berlin's view said this was a misinterpretation of its position.
“nobody [in the top echelon of the government] “We wanted to invite UniCredit,” one of the people said.
Key government officials were disappointed with the outcome of the sale, people familiar with internal discussions said.
“UniCredit deliberately tried to surprise everyone by adopting what has been seen as extremely unfriendly behavior,” said a person familiar with the thinking of top executives.
UniCredit acquired the block of government shares at a 4.8 percent premium to Tuesday's closing price. Commerzbank shares have since jumped 24 percent, as UniCredit's stake is seen as a possible prelude to a bigger deal.
The developments have raised doubts over whether UniCredit should be allowed to complete the takeover, a person familiar with officials' thinking said.
He said policymakers were “worried that the move could mean that highly acrimonious discussions about the takeover of Commerzbank will continue until 2025, a crucial election year.”
One experienced investment banker told the Financial Times that it was unusual for a strategic investor to be allowed to participate in a block sale that takes place after the sale of shares.
Accelerated bookbuilds — a standard procedure used to quickly sell large chunks of stock to financial investors — were the “wrong tool” when buyers had strategic ambitions, the person said.
Thomas Schweppe, a former Goldman Sachs M&A banker and founder of Frankfurt-based boutique shareholder advisory firm 7squared, said Berlin “could have received a much higher premium and proceeds” in a strategic sale.
Even if the government feels obliged to allow all bidders to participate in a “non-discriminatory” process, it could have included conditions to prevent any single bidder from acquiring all the shares. “These are the usual terms and conditions,” said a person familiar with such sales.
Several bankers familiar with the accelerated book building process suggested it should have been scrapped once UniCredit's interest as a strategic bidder became clear. People familiar with discussions within the finance agency said it was not considered feasible for legal reasons.
Goldman, which had organised the auction together with JPMorgan, had to step aside midway through the process after UniCredit's interest became clear, leaving JPMorgan to complete the bookbuild alone.
Goldman has long been a strategic adviser to Commerzbank and is now advising on its takeover defence. JPMorgan has previously been an adviser to UniCredit.
UniCredit, JPMorgan, Goldman and the federal financial agency declined to comment.