UniCredit, Italy's second-largest bank, has received European Central Bank authorisation for its €14 billion all-share offer to acquire smaller rival Banco BPM, marking a significant step forward in the potential banking consolidation.

The Milan-based lender said its board would approve on Sunday the share issue needed to fund the takeover bid, following shareholder authorisation obtained on Friday. Italian market regulator Consob is expected to clear the offer document in the coming week, representing the final regulatory hurdle before UniCredit can formally launch its tender offer.

The takeover bid comes amid considerable disruption in the Italian banking sector, which has recently enjoyed strong profitability due to higher interest rates after undergoing a challenging clean-up following the 2008-2012 financial crisis years.

Andrea Orcel, chief executive officer of UniCredit and a seasoned dealmaker who has also built strategic stakes in Germany's Commerzbank and Italian insurer Generali, has consistently emphasised that he will not pursue mergers at the expense of shareholder returns.

UniCredit initiated its bid for Banco BPM in November, shortly after its target had moved to acquire fund manager Anima Holding.

The Anima acquisition, valued at €1.8 billion, became more financially challenging for BPM this week when the ECB issued a negative opinion on the possibility of BPM utilising favourable capital rules known as a 'Danish Compromise'. Despite this setback, BPM confirmed on Thursday that it would proceed with the Anima acquisition, having previously secured shareholder approval to pursue the deal even without these regulatory benefits.

The ECB decision would have allowed BPM to distribute an additional €1 billion in dividends. UniCredit has reserved the right to withdraw its offer for BPM without the Danish Compromise benefits in place, stating that it would closely monitor the effects on BPM's profitability and capital position before making a final decision.

On Friday, UniCredit remarked that the Anima setback validated its decision to offer Banco BPM shareholders a bid with nearly zero premium.

The authorisations from the ECB and Bank of Italy represent crucial regulatory clearances needed for Italian market regulator Consob to finalise its approval of the offer document.

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