Commerzbank shares surged in pre-market trading on Friday after the German bank sealed its takeover of Dresdner Bank ahead of time late on Thursday, paying less than market participants had feared.
Commerzbank will pay just over €5 billion ($6.6 billion) in a deal some have greeted with skepticism in the face of the global financial crisis. The purchase price is less than was originally outlined when the deal was announced in September due to the collapse in Commerzbank’s share price. The deal also means Commerzbank will not have to issue new shares to pay for the rest of Dresdner.
The value of banks such as Dresdner have also been decimated after Wall Street’s Lehman Brothers folded. “The main driver for (Commerzbank’s) share price is that there will be no further capital hike and therefore no further shareholder dilution,” Frankfurt Finanz analyst Heino Ruland said. Commerzbank shares were indicated over 20% higher by 0740 GMT while Allianz was indicated up 2.4%.
The crisis forced Commerzbank to turn to the government for capital. It took €8.2 billion from Berlin to prop up flagging finances, making it easier to pay for the second tranche of Dresdner which it needed to conclude the takeover. The sale leaves insurer Allianz with a stake of about 18% in the combined bank and concludes a costly lesson for the insurer for dabbling in bank ownership.
Allianz was supposed to receive 151.5 million Commerzbank shares for the remaining 40% stake but Commerzbank said these shares will not be issued anymore. “In the current situation on the financial markets an accelerated takeover of Dresdner by Commerzbank is to the advantage of all parties,” said Allianz Chief Executive Michael Diekmann. Allianz said the takeover could now go ahead six to nine months ahead of plan.
When the deal was announced earlier this year, analysts and insiders had expressed skepticism over whether the pairing of what many see as two mediocre performers could create a financial champion. Nonetheless the sale will give Commerzbank a badly needed leg-up in its home market, which is dominated by state not-for-profit lenders, and allow Allianz to end an unhappy marriage that unsuccessfully tried to match investment bankers with insurance salesmen.
Architects of the Dresdner takeover had hoped to sell bank accounts to Allianz customers as well as products such as car insurance at bank branches. Instead, investor tempers rose and Dresdner racked up billions in losses.
In June last year, Reuters reported that Allianz had begun to consider its options for Dresdner. The resulting jump in the insurer’s share price reflected the degree of investor frustration with the botched takeover. But finding a buyer was not easy, mostly because of Dresdner’s laggard investment bank -- a business which had struggled even before the financial markets storm. (Reuters)