(Sept 15): Germany on Monday outlined three key demands for a takeover of Commerzbank AG, ahead of the first face-to-face discussion on the issue between Finance Minister Lars Klingbeil and UniCredit SpA chief executive officer Andrea Orcel.

Commerzbank’s core business model and its role in financing the country’s small- and medium-sized enterprises needs to be preserved, finance ministry spokesman Maximilian Kall said at the regular press conference in Berlin before the talks. 

The German lender should also remain headquartered in Frankfurt, the country’s financial hub, and the interests of the lender’s employees must be safeguarded in a deal, he said. The government holds about 13% in Commerzbank. 

The conversation marks the first time that the government spelled out the conditions it expects Orcel to meet for a takeover of Germany’s second-biggest listed lender. The Italian has been pursuing a deal publicly for two years, amid fierce opposition from the rival and politicians. Negotiations gained momentum after UniCredit secured just under 50% of Commerzbank’s shares during a formal offer this summer.

“The two banks are at a different stage now that they’re negotiating a transaction,” Kall said. “It’s no longer about a hostile takeover but about finding the best path for the two banks.” The actual merger negotiations are taking place between the lenders and don’t involve the government, he said.

Behind the scenes, however, the government wants to make sure that Commerzbank also remains a publicly traded company for now, people familiar with the matter said, asking not to be identified discussing private information. Given the size of a merged bank’s German business, Berlin also regards some representation of Commerzbank at UniCredit as necessary, they said. 

The government itself wants to keep its two Commerzbank supervisory board seats, as long as it is invested. At this stage, it’s not yet open to discussing a sale of its 13% stake to UniCredit, they added.

Berlin previously rejected a takeover bid from UniCredit that ended in July as too low. The Italian bank had offered 0.485 of its shares for each one of Commerzbank, a proposal that included effectively no premium. A full takeover would mark the largest bank acquisition in almost two decades, given Commerzbank’s market value of about €46 billion (RM216.97 billion).

Orcel has presented a strategic plan for Commerzbank that includes cutting back its large network of offices around the world. Commerzbank CEO Bettina Orlopp is strongly opposed to that idea. Both executives last month held their first formal talks over how to manage the expected change of control, Bloomberg News has reported. 

While those talks are expected to continue in the weeks and months ahead, the encounter showed agreement won’t be easy to find as UniCredit executives highlighted they remain committed to their previous strategy proposals, while their counterparts at the German lender continued to defend their own strategy, people familiar with the matter said at the time. 

UniCredit has said it expects to take full ownership of its stake as early as the fourth quarter, pending regulatory approvals, and it would then take control of Commerzbank. It has floated the idea of replacing the top management if needed. Given that not all shareholders usually vote at shareholder meetings, a holding of close to 50% is likely enough to decide strategic and management issues.

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