Italy's second-largest bank, UniCredit, said Monday it had bid 10.1 billion euros ($10.5 billion) in an all-share deal for smaller domestic rival Banco BPM, one that comes as it also pursues a contentious deal for Germany's Commerzbank.

UniCredit said the bid to combine Italy's number two and three banks would seek to reinforce its position in the domestic market, adding the proposed deal remains subject to regulatory approval.

A UniCredit statement said the plan was to create a "stronger number two bank in an important market capable of creating significant long-term value for all shareholders and Italy."

UniCredit expects to be able to complete the takeover bid in June 2025 "with (BPM's) full integration completed in the following 12 months and most synergies achieved in 24 months."

"UniCredit has a strong track record in successfully integrated acquisitions," the bank added.

"With this acquisition ... we are strengthening our position in Italy and at the same time increasing, even more, the value we can create for all parties involved and for our shareholders in this market," UniCredit Chief Executive Andrea Orcel was quoted as saying in the statement.

UniCredit says the takeover would benefit BPM shareholders, customers and employees within both groups, as well as the Italian and European banking systems, at a time of "geopolitical uncertainty."

UniCredit estimates the mooted deal will lead to annual cost savings of about 900 million euros ($942 million) and increased revenue of some 300 million euros.

Commerzbank shares fell as much as 7% at the start of trading in Frankfurt, while in Milan, UniCredit shares fell about 1.5%, and BPM shares rose nearly 5%.

Italy's second-largest bank had previously readied a buyout offer for Banco BPM in 2022, just before the Ukraine conflict broke out.

UniCredit offered 0.175 of its common stock for each BPM share, valuing them at 6.67 euros each. That represents a premium of about 0.5% to Friday's closing price or 15% to the day before the announcement of the Anima bid.

The offer for Banco BPM is independent of its proposed investment in Commerzbank, UniCredit said, noting discussions around a possible acquisition would need to wait for Germany to form a new government.

Orcel's advances for Commerzbank have sparked a backlash due to political opposition to a takeover by an Italian lender that would lead to job cuts and expose Commerzbank to Italian sovereign risk.

The near 21% stake UniCredit has built in Commerzbank, in part with derivatives conditional on supervisory approval, "remains an important investment with downside protection and substantial upside potential," UniCredit said.

"So that is an investment for now. We can sit on it for a while. It will remain," Orcel told a briefing.

The BPM Banco move took Commerzbank by surprise as management tried to figure out what it meant, according to two people familiar with the matter, Reuters reported. One person familiar with the bank's thinking said that while it could signal that a Commerzbank takeover was less likely, the move was challenging to interpret.

The sources were not authorized to speak to the media and declined to be identified.

The offer for Banco BPM comes after Italy's third-largest bank this month bought 5% in bailed-out rival Monte dei Paschi di Siena (MPS), a move seen as potentially paving the way for an eventual combination of the two mid-sized lenders as the state pulls out of MPS entirely.

It also follows a 1.6 billion euros ($1.7 billion) buyout offer Banco BPM launched this month to gain full control of asset manager Anima Holding as it seeks to boost net fees in the face of falling interest rates.

UniCredit said it had taken note of the Anima's bid. Orcel has worked to boost fee income at UniCredit and make its profit less reliant on lending income.

UniCredit said it expected the deal with the Banco BPM, which must receive European Central Bank (ECB) and antitrust approval, could be concluded by June 2025.

UniCredit is also waiting for ECB approval to buy up to 29.9% of Commerzbank.

BPM did not immediately respond to a Reuters request for comment.