Stock Market Predictions

Unipol hits new hurdle in Fondiaria deal

Stock Market Predictions

Earlier on Friday, Unipol and Fondiaria had priced their respective rights issues, planned to provide funding for their merger plans to create Italy's No. 2 insurer, after which the share price of both companies slumped.

But in later statements, both said Consob had not approved the prospectus for their rights issue and that the offer could no longer be launched on Monday.

Sources close to the deal said banks were working to try and get the capital increases launched on July 16, but the delay would not prompt any shifting of the goalposts in an operation that at times has resembled an Italian soap opera.

The rights issues are also dependent on the banks in the underwriting consortium signing their final contract, but they have not done so yet. However, the merger is unlikely to be derailed because the banks are expected to eventually sign up, a banking source close to the deal said.

Unipol agreed in January to rescue its loss-making peer in a deal brokered by investment house Mediobanca (MDBI.MI).

But a series of judicial and regulatory hurdles, as well as bitter disputes with Fondiaria's main owners, the Ligresti family, have muddied waters and tested Unipol's patience.

An industry source said Fondiaria had only filed its rights issue prospectus in the early hours of Friday with a large number of changes, hinting Consob did not have enough time to evaluate it.

A regulatory source told Global Markets that Consob had requested additional information from the parties, adding this was a normal occurrence in complex operations.

Unipol's takeover plans envisage a four-way merger with Fondiaria, its debt-laden parent Premafin (PRAI.MI) and its unit Milano Assicurazioni (ADMI.MI), with three capital increases.

TOUGH CONDITIONS

Concern has been expressed that it could be difficult to get the rights issues away without a hefty discount, in light of challenging market conditions and financial strains at Fondiaria.

The insurer, which had a market capitalization of 5 billion euros ($6.15 billion) only five years ago, has seen its value shrink to about 387 million euros and has a solvency ratio - a measure of financial strength - well below the regulatory minimum.

Insurance regulator ISVAP has called for Fondiaria's capital to be bolstered quickly, with concern growing it could place the insurer in special administration if a solution is not found soon.

Unipol and Fondiaria are waiting on the banks lined up for the rights issues to formally sign the underwriting contract, another precondition for the capital hikes to go ahead.

"The discount is quite low and I think some of the banks could be scared to sign up since, with interest low, they could end up holding a lot of shares," one Milan analyst said.

Shares in the two insurers slumped on Friday after Unipol offered a 27.2 percent discount for the ordinary shares in its 1.1 billion euro cash call, while Fondiaria gave a 24.7 percent discount on a similar-sized issue.

"The discount is similar to recent operations of this kind but we couldn't have expected any more given the enormous amount of shares issued and dilution involved," a Milan trader said.

Unipol said it would issue around 442.8 million new ordinary shares at 2 euros each, and would offer 20 new shares for every share already owned.

Fondiaria said they would price around 917 million new ordinary shares at 1 euro each, with a swap ratio of 252 new shares to one.

Mediobanca, which holds Fondiaria debt to the tune of more than 1 billion euros, is organizing the consortium.

Shares in Unipol and Fondiaria closed down 10.6 percent and 17.2 percent respectively.

($1 = 0.8126 euros)

(Reporting by Stephen Jewkes and Andrea Mandala; Editing by David Hulmes)