A second proxy adviser opposes the plan

Glass Lewis, the second large proxy adviser, has recommended that Monte dei Paschi di Siena (Mps) shareholders vote against the defensive plan drawn up by CEO Luigi Lovaglio in response to the public purchase and exchange offer (Opas) from Intesa Sanpaolo. Its recommendation covers the two exchange offers on Banco BPM and Banca Generali, the 4 billion euro extraordinary dividend, the purchase of the Generali stake currently held through Mediobanca, and a capital reduction. Glass Lewis supports the merger with Mediobanca and the wider corporate reorganization. Its opposition to the Generali stake purchase is harsher than that of ISS, which had backed that item. Proxy advisers usually side with the companies whose proposals they review, which makes this rejection unusual. The roughly 40-page report says the obstacles to Mps's proposals appear considerably greater than those facing Intesa's offer, and that the bank's explanations do not address them in substance.

Board split and shareholder opposition

The Mps board is divided over the plan. At the meeting on Monday, 12 October, six board members openly voiced dissent from the CEO's line, and some demanded his resignation, according to reporting on the session. Delfin, Caltagirone and Benetton have promised to vote against Lovaglio at the assembly, and together with smaller shareholders their holdings exceed 33% of the capital, according to il Giornale. Mps chairman Cesare Bisoni had earlier said he was confident in the CEO's plan. The day after that board meeting, Bisoni said the board had not split but had voted by majority on a critical statement about the price and synergies of Intesa's offers.

The board did not split, but expressed itself by majority.

Nearly 60 complaints have been filed with Consob, the market regulator, the latest by Intesa Sanpaolo on 13 October. Lovaglio is reportedly weighing the Generali holdings of the shareholders who oppose his plan, and according to financial sources he wants to deliver a final setback to Intesa before the assembly.

Risks the proxy advisers cite

ISS, which issued its recommendation on 13 October, argues that the two simultaneous acquisitions would raise execution risk while the Mediobanca integration is still under way. It also points to the absence of due diligence and of a prior agreement with the reference shareholders of the two target banks, along with uncertainty over the board's request to change the terms of the project. ISS says such a deal would be best run by a board and management team acting as one, a condition it says does not currently exist. According to La Stampa, the proposed capital reduction would give Lovaglio 10 billion euros of reserves to spend. The 4 billion euro dividend is made up of Generali shares worth 3 billion euros and 1 billion euros in cash, according to il Giornale.

Market reaction and what comes next

Mps shares rose 0.45% to 11.2 euros on Piazza Affari, roughly in line with Intesa's offer, according to Il Messaggero. ISS's recommendation is not automatic support for Intesa's offer, which proxy advisers will assess in due course. Kepler judges it very difficult for Mps to reach the two-thirds majority needed to approve the offers on Banco BPM and Banca Generali, given the stated voting intentions of Delfin and the Caltagirone group. The assembly is scheduled for 29 October, and the acceptance period for Intesa's offer is expected to open by November.