updated 6/13/2005 7:23:25 AM ET 2005-06-13T11:23:25

Germany’s HVB Group agreed Sunday to be acquired by Italy’s Unicredito SpA for 15.4 billion euros ($18.7 billion), opening the way for Europe’s biggest ever cross-border banking deal and the creation of a dominant player in the former communist east.

The banks said Unicredito, Italy’s largest bank, offered five of its shares for each HVB share. It said it would also offer cash or stock for outstanding shares in HVB’s Austrian and Polish units.

Unicredito said its board backed the offer at a meeting in Milan. However, shareholders in both companies as well as regulators must still give their approval.

“The management board and the supervisory board of HypoVereinsbank approved the business combination,” HVB said in a statement after a meeting of the company’s executives in Munich.

The agreement is a triumph for Unicredito Chief Executive Alessandro Profumo, who is to run the combined bank from Italy’s financial capital, Milan.

Under his leadership, Unicredito has emerged as a force with the combination of seven Italian institutions, most of them regional savings banks, in 1998 and 1999.

It has since carried out a string of acquisitions in countries such as Poland, Slovakia and Romania, and also bolstered its asset management arm with the acquisition of U.S. fund manger Pioneer in 2000.

Its move for HVB came as the German bank struggled to cut costs at its domestic business, where property writedowns last year pushed it to a net loss of 2.3 billion euros ($2.8 billion). Unicredito, which is headquartered in Genoa, earned 2.1 billion euros ($2.5 billion) in 2004.

Acquiring HVB, Germany’s No. 2 lender, would give Unicredito a major foothold in Germany, the continent’s largest economy.

“We will become the first truly European bank,” Profumo said in a statement which promised investors “compelling” profit growth.

HVB had also pushed aggressively into eastern Europe, and the combination could face tough examination from regulators in countries where it will dwarf competitors, such as Poland.

However, the deal would be a further blow to the prestige of Germany’s once-mighty financial industry.

Banks such as Deutsche Bank AG have shelved once ambitious expansion plans to concentrate on painful restructuring at home to shore up earnings. Analysts expect more consolidation, including further foreign takeovers.

Shares of Commerzbank AG, itself tipped as a partner for Unicredito as far back as 2001, have risen in recent weeks following renewed speculation that it could be a target for rivals in France or Britain.

Italian Foreign Minister Gianfranco Fini congratulated Unicredito’s chairman, Carlo Salvatori, who telephoned him, the foreign ministry said in a statement Sunday night.

“Today is a very happy day for Italy and for Europe,” Fini said. “The birth of an Italian-German banking axis ... constitutes a step of great significance in the prospective of further integration of economic and monetary Europe.”

Yet the deal could darken the hopes of Chancellor Gerhard Schroeder, under fire over stubbornly high unemployment, in expected fall elections if it leads to redundancies among HVB’s 26,000 German employees — almost half its work force.

A statement from Unicredito made no mention of job cuts, but forecast savings of about 900 million euros ($1.1 billion) by 2008 from merging overlapping units. While its retail, corporate and asset management business would be based in Milan, the investment banking division would go to Munich.

Vienna would be the headquarters for its central and eastern European business.

HVB chief Dieter Rampl, who would be chairman of the enlarged group, said it had found “the best partner” for both its shareholders and employees.

Unicredito said it would list its shares in Frankfurt, Warsaw and Milan.

Profumo and Rampl were to give further details at a news conference in Munich on Monday.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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