Following the proposed cash-and-share deal, Elliott Advisors would emerge as a leading investor in the combined entity with a 20% stake. The U.S. fund will also commit to subscribe to a planned new share issue needed to shore up doValue's finances.
Companies in the non-performing loan (NPL) sector are under pressure to consolidate as banks' surprisingly healthy loan books have reduced the need for the disposals of impaired debts that used to feed the NPL market.
"Negotiations will now proceed on an exclusive basis aimed at finalising a binding agreement for the potential combination with Gardant," doValue said in a statement.
Recent market conditions, doValue said as it unveiled a new multi-year strategy, "reflect a 'perfect storm' scenario" with banks having high capital reserves and low impaired debts.
With the acquisition, doValue would secure a steady stream of revenue because Elliott-backed Gardant has recently struck a deal with BPER Banca to buy its NPL business and provide collection services to the Italian bank for a number of years.
A similar contract doValue has with UniCredit runs out in 2025. Having lost a major contract in Spain in 2022, doValue has seen its share price plunge almost 50% this year on concerns over its future prospects.
BPER was the last major Italian bank yet to dispose of its loan recovery operations.
"The envisaged transaction ... is expected to be accretive to cash EPS (earnings per share), cash-flow generation and financial soundness, thus reinforcing its balance sheet," doValue said, adding it would refinance all or part of its existing debt.
When excluding non-recurring items, the combined group aims for a net debt level of around 2 times core profit by 2025 after carrying out the new share issue, doValue said.
(Reporting by Valentina Za, editing by Giulia Segreti and Elaine Hardcastle)
