Italy's UniCredit has agreed to buy smaller rival Capitalia for more than $29 billion in shares to create Europe's second biggest bank, with branches stretching from Sicily to Eastern Europe.
The boards of both banks approved the takeover on Sunday, the banks said in a joint statement issued hours after they won the backing of a key group of investors controlling about 31% of Capitalia.
The merger cements UniCredit's position as Italy's largest bank by market value and ends years of speculation as to who would carry off Rome-based Capitalia in a rapidly consolidating industry.
UniCredit will pay 1.12 of its shares for each Capitalia share, valuing Capitalia at 8.41 euros a share or 21.83 billion euros ($29.47 billion), according to UniCredit's last share price before their trade was halted on Friday.
The takeover enables the new UniCredit, with a combined market capitalizations of more than $135 billion, to expand on its home turf in a challenge to its larger domestic rival Intesa Sanpaolo. It also keeps Capitalia, Italy's third-largest bank, out of the hands of prospective foreign buyers.
"The transaction is a unique opportunity to consolidate two leading banking groups in a key core market," read the statement.
Capitalia Chief Executive Matteo Arpe, who spearheaded a turnaround at the bank but locked horns over strategy with influential Chairman Cesare Geronzi has resigned.
Geronzi will become vice chairman of UniCredit, while UniCredit's Chief Executive Alessandro Profumo and Chairman Dieter Rampl will retain their titles.
Geronzi is appealing against a conviction for corporate wrongdoing in a case concerning the bankruptcy of an Italian real estate and hotel group. Prosecutors have asked to charge him and others in a case linked to the Parmalat dairy group bankruptcy. In this case he has also denied any wrongdoing.