Italy's Banca Popolare di Lodi announced on Friday a 5.3 billion-euro ($6.85 billion) mostly share and bond bid to buy bigger rival Banca Antonveneta, the target of Dutch bank ABN Amro. Bringing to a head what has become a test case for cross-border banking mergers in Europe, the northern co-operative bank said its offer valued Antonveneta at 26 euros per share, more than ABN's all-cash offer of 25 euros a share. But analysts said the valuation of stock in Pop Lodi's offer was higher than market prices.
"The deal is amazingly complex. It's difficult to assess it right now, but there seems to be a component of overvaluation," said a bank analyst who declined to be named.
ABN announced its offer for Antonveneta in March after Pop Lodi began to make advances, backed by other Italian investors.
The Dutch bank has since accused the Bank of Italy of favouring Pop Lodi, and the European Commission on Thursday warned the central bank not to block ABN's offer.
Pop Lodi's offer valued the bank at nearly 7.5 billion euros and would create Italy's number five bank if successful.
It already owns more than 29 percent of Antonveneta, meaning it would spend up to 5.3 billion euros to complete the job.
"It's a complicated offer and not deeply attractive," said Christopher Wheeler, a senior bank analyst at Bear Sterns.
"But there are several Antonveneta shareholders that want to work with Pop Lodi. They will be willing to take up shares in what they hope will become a banking powerhouse in Italy, leaving a lot of cash on the table."
The co-operative bank also said it would seek to raise 3 billion euros ($3.88 billion) to fund the deal, compared with its market capitalisation of about 2.4 billion euros.
Half of the new funding would come from convertible bonds.
After being suspended pending announcement of the plan, Pop Lodi shares opened down 2.3 percent at 7.74 euros, rapidly extending losses to an 8-month low of 7.58 euros by 1245 GMT.
That was substantially below the valuation of 9.20 euros per Pop Lodi share used in its bid calculations. Antonveneta shares were down 2.8 percent at 25.34, a fraction below the total ABN offer, which consists of 25 euros per share plus a planned dividend of 0.45 euros per share.
In a statement after a board meeting, Pop Lodi said 17.7 percent of its offer would be paid in new Pop Lodi shares, 69.2 percent in shares of its listed retail banking unit Reti Bancarie and 11.6 percent in new Pop Lodi bonds.
The offer also included a possible cash component of 0.40 euros per share.
Pop Lodi said the deal would generate synergies on costs and revenues worth more than 300 million euros.
SATURDAY VOTE: ABN's chances of withstanding Pop Lodi's challenge to its take-over plan faces a stiff test on Saturday when Antonveneta shareholders are due to elect a new board.
If Pop Lodi's candidates prevail, the new board could come out in favour of the co-operative bank's offer, potentially making it easier for the Bank of Italy to block ABN's bid.
Besides the 29 percent it owns, according to official data, Pop Lodi is also likely to have support from Italian investors who own a further 14 percent of Antonveneta.
ABN has 18.5 percent and can probably count on help from insurer Lloyd Adriatico, which has nearly 3 percent, plus an unknown number of institutional investors.
"The margin for ABN is extremely limited at this point. The latest developments favour Pop Lodi," a source familiar with the situation told Reuters.
Separately, Italy's Banca Nazionale del Lavoro, the target of a 6.2 billion euro all-share offer from Spain's BBVA, said enough of its shares had been deposited for its shareholders' meeting to take place on Saturday, too.
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