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MILAN, July 17 (Reuters) - Banco BPM shares rose as much as 2.7% on Monday after Italy's third-largest bank said it would sell 71.6% of its card and shopowner payments operations to private equity fund FSI for 500 million euros ($561 million) in cash and shares.
Banco BPM said late on Friday it would receive an initial cash payment of 200 million euros as well as a 28.6% stake in the new payments venture it is setting up with FSI, indicating its holding would be worth 300 million euros.
An earn-out mechanism could bring the overall value of the sale to 600 million euros, the companies said.
"This payment agreement paves the way for a share buyback in 2024" of up to 500 million euros, boosting earnings per share by 8% in 2025 based on current trade price, said JP Morgan in a note.
Barclays said the agreement is "positive on all fronts" as it will favourably impact the bank's capital generation and profits, and help BPM take advantage from the future growth of the payments business.
Banco BPM shares were up 2.1% by 0802 GMT, topping Italy's blue-chip index, which was trading up 0.1%.
The transaction values the new joint-venture at around 15 times its core profit, people familiar with the deal said. That is almost twice the valuation multiple at which market leader Nexi trades.
Nexi, which currently partners with Banco BPM, had vied for the contract with rival Worldline, but Europe's top two payments firms lost out to smaller rival BCC Pay, the payments business of FSI and unlisted cooperative bank ICCREA.
Banco BPM's is the last significant asset of this kind left to buy in Italy, which bankers said pushed FSI to outbid rivals to gain scale in a fast-growing sector.
Given its nature of private equity fund, FSI will eventually need to liquidate its holding and is betting on cost cuts and business growth.
Banco BPM, which is already a minority investor in other fee-earning businesses, such as insurance or consumer credit, said the deal would boost its best-quality capital by nearly a third of a percentage point.
That could rise to half a percentage point depending on the earn-out price mechanism.
BCC Pay currently handles 60 billion euros in cards and shopowners transactions, compared to Banco BPM's 30 billion euros.
Banco BPM said in a joint statement with FSI and BCC Pay they were creating the country's second-largest payments group.
The national champion, Nexi handles 181.5 billion euros in merchants' transactions, of which 102 billion euros is in Italy, plus 204.2 billion euros in cards' transactions, with 116.8 billion euros in Italy.
Migrating Banco's current clients to FSI will take several years and exposes the new venture to the risk of losing clients to Nexi and its other banking partners, with analysts pointing to Nexi's wider commercial offer and stronger pricing power. ($1 = 0.8910 euros) (Reporting by Valentina Za; Editing by Federico Maccioni and Mike Harrison)
