By Valentina Za, Gianluca Semeraro and Mathieu Rosemain

MILAN (Reuters) - Monte dei Paschi (MPS) CEO Luigi Lovaglio has pulled several all-nighters since arriving in Siena in early 2022, when Italy's Treasury picked him out to revive the fortunes of the world's oldest bank, five years after bailing it out.

Back in October 2022 he worked through the night to pull off a share sale, as MPS's seventh cash call in 14 years sparked last-minute panic among banks underwriting it. MPS struggled to sell shares at 2 euros each back then.

MPS stock traded at 7 euros this week when Lovaglio and his finance chief Andrea Maffezzoni have emerged from two all-nighters that ended in them launching a 13.3 billion euro ($14 billion) all-share takeover bid for larger rival Mediobanca, Italy's historic investment bank.

More than 10 billion euros in cash between 2017 and 2022 have allowed MPS to clean up its balance sheet in time for the bank to seize the profit boost from higher rates and jump on the consolidation train racing through the Italian sector.

MPS, which once threatened to spread contagion across the industry, is bidding for a bank that for decades held sway over Italy's financial arena.

Lovaglio, 69, appeared conscious of his bold move and sought to strike a conciliatory tone on Friday.

"We don't want to take any action that can in some way make weaker the powerful organisation that Mediobanca is," he told analysts.

THE ODD COUPLE

Analysts fretted "the odd couple" of Mediobanca and MPS had in common little more than two significant shareholders: Delfin, the holding company of late billionaire Leonardo Del Vecchio, and fellow tycoon Francesco Gaetano Caltagirone.

International funds have piled into MPS over the past two years as the Treasury cut its stake to 11.7% from 68%. The surprise bid sparked a sell-off, with MPS shares closing down 7%.

A person involved in the deal said advisers UBS and JPMorgan would set to work to explain the deal to investors and dispel concerns it could just reflect the shareholders' secret agenda.

Delfin and Caltagirone also own stakes in Italian insurer Generali, and have for years accused Mediobanca CEO Alberto Nagel of relying excessively on income from Mediobanca's stake in Generali.

Delfin and Caltagirone this week opposed Generali's asset management tie-up with France's Natixis Investment Managers.

They found an ally in the government, which is concerned about savings shifting outside of Italy.

At the same time, the government's resolve to help build a third big banking group in Italy to rival Intesa Sanpaolo and UniCredit strengthened.

Rome had thought it was headed in the right direction when in November it sold shares in MPS to Banco BPM, Italy's third largest lender, as well as Delfin and Caltagirone.

But late last year, UniCredit made a surprise bid for Banco BPM, thwarting Treasury's efforts to encourage, with help from Delfin and Caltagirone, a tie-up between MPS and BPM.

SACRED

Lovaglio on Friday said he had presented Mediobanca as a merger option for MPS to Italy's economy minister back in December 2022, alongside plans for more plain-vanilla tie-ups with peers.

Since then, it had become widely known that mid-sized rivals Banco BPM and BPER were potential candidates for MPS.

Only the recent emergence of Delfin and Caltagirone as major MPS investors put Mediobanca on the map of potential deals.

A person involved in the bid's preparation said that Mediobanca was "such a sacred name" in Italian finance that it was natural to keep any tie-up ambitions secret until they could have a chance of success.

Rome on Friday threw its support behind MPS's bid for Mediobanca, with two people close to the matter saying the Natixis-Generali combination may have played a role in cementing the government's support for the plan.

A third person involved in the bid, however, said Lovaglio's reasons for the deal were purely industrial and based on the need to find MPS a partner and how complementary the two businesses could be.

"We're besides ourselves," a senior MPS employee at a Siena branch told Reuters on condition of anonymity. "This deal would be so perfect for our franchise."

So far, however, Mediobanca CEO Nagel has rebuffed attempts to open a dialogue with MPS and is preparing to fight against the offer, two people with knowledge of the matter said.

Mediobanca has not commented on the bid.

($1 = 0.9541 euros)

(Reporting by Valentina Za and Gianluca Semeraro in Milan; Mathieu Rosemain in Paris; Editing by Jane Merriman, Tommy Reggiori Wilkes and Louise Heavens)