Commerzbank Agrees to Buy Dresdner for EU9.8 Billion

Commerzbank Agrees to Buy Dresdner for EU9.8 Billion

Aug. 31 (Bloomberg) -- Commerzbank AG agreed to buy Allianz SE's Dresdner Bank for 9.8 billion euros ($14.4 billion) in Germany's biggest banking takeover in three years, leapfrogging Deutsche Bank AG by customers and branches.

The Frankfurt-based bank will buy Dresdner in two steps, initially acquiring 60.2 percent with cash and stock and purchasing the remainder by the end of 2009, Allianz and Commerzbank said in separate statements today. Commerzbank will help pay for Dresdner by transferring its Cominvest asset management unit, valued at about 700 million euros, to Allianz.

The purchase doubles Commerzbank's German retail clients to about 11 million, surpassing Deutsche Bank with 9.7 million. For Munich-based Allianz, Europe's largest insurer, the sale unwinds the 23.5 billion-euro purchase of Dresdner, which has dragged on the company's profit and stock. The insurer agreed to cover as much as 975 million euros of potential losses from assets held by Dresdner's securities unit.

``The Dresdner problem is finally nearing a solution,'' said Ernst Konrad, who helps oversee about $35 billion as head of equities at BayernInvest in Munich, including Allianz and Commerzbank shares. ``With this acquisition, Commerzbank creates the clear number two in the German banking landscape.''

Allianz has fallen about 61 percent in Frankfurt trading since the Dresdner acquisition was announced on April 1, 2001, more than the 49 percent drop in the Bloomberg Europe 500 Insurance Index.

Commerzbank Revival

Commerzbank Chief Executive Officer Martin Blessingtook over in May from Klaus-Peter Mueller, who revived profit by scaling back investment banking, cutting jobs and focusing on consumer banking and lending to mid-sized German companies. The company has reported four straight years of profit growth.

Commerzbank said it plans to eliminate about 9,000 jobs from the combined workforce of 67,000, mostly through voluntary measures. Positions will be eliminated in areas including investment banking, back office and control. There will be no firings before the end of 2011, the company said.

The bank expects reorganization costs of 2 billion euros and cost savings of about 5 billion euros, as it reduces total branches by 22 percent to 1,200 by 2012. Frankfurt-based Deutsche Bank, by comparison, has almost 1,000 branches in Germany. The takeover should boost earnings per share starting in 2011, Commerzbank said.

`Milestone'

``We are taking advantage of a unique opportunity to make Commerzbank the leading bank for private and corporate customers in Germany,'' Blessing, 45, said in the statement.

Commerzbank was advised by Credit Suisse Group AG, JPMorgan Chase & Co., KPMG LLP and Mediobanca SpA. The takeover needs to be approved by regulators.

Allianz CEO Michael Diekmann, 53, put Frankfurt-based Dresdner up for sale this year after subprime-related losses at the Dresdner Kleinwort securities unit eroded profit. Dresdner posted its fourth straight quarterly loss on Aug. 7, following writedowns at the investment bank.

``This transaction is a milestone for banking consolidation in Germany and strengthens the German economy,'' Diekmann said in the statement. The transaction gives Allianz a ``powerful distribution network'' for its insurance products.

The combined bank will offer Allianz insurance under an exclusive sales agreement, the companies said. An existing cooperation with Assicurazioni Generali SpA, Italy's biggest insurer, won't be renewed when it expires in 2010, they added.

The acquisition is the third banking takeover in Germany in the last two months as rivals vie for a larger slice of the nation's fragmented consumer market, which remains dominated by state-owned lenders.

Shaking Up Market

Citigroup Inc. announced on July 11 the sale of its German consumer unit to France's Credit Mutuel Group for 4.9 billion euros in cash. Lone Star Funds, the Dallas-based private equity firm, agreed to buy IKB Deutsche Industriebank AG, the first German subprime casualty, on Aug. 21.

Takeovers will shake up financial services in a market where ``tooth-and-claw'' competition has sapped profitability, Citigroup analysts said in a February report.

The nation's five biggest banks -- Deutsche Bank, Commerzbank, Dresdner, HVB Group and Deutsche Postbank AG -- control about 11 percent of savings deposits, compared with 51 percent at Germany's savings banks and 30 percent at cooperative lenders, according to the German association of private banks.

Two-Step Purchase

Commerzbank and Dresdner together have about 1.1 trillion euros in assets, compared with Deutsche Bank's 2 trillion euros. Deutsche Bank CEO Josef Ackermann has said he would consider acquisitions to boost consumer banking and has expressed interest in Postbank.

Deutsche Post AG, Europe's biggest postal service, reiterated on Aug. 19 that it's still holding talks with ``various potential partners'' about a possible sale of Postbank, which has 14.5 million customers and 850 branches.

As part of the Dresdner takeover, Commerzbank agreed to cover the first 275 million euros of potential losses on certain asset-backed securities, while Allianz agreed to cover the next 975 million euros of losses, the insurer said in the statement. Dresdner Bank's investment banking activities ``will be partially reduced,'' Allianz said, without elaborating.

Commerzbank will complete the first stage of the purchase of Dresdner by the start of 2009, paying Allianz 164 million new shares, or an 18.4 percent stake in the bank. In addition to the 3.4 billion euros worth of shares, Commerzbank will pay 2.5 billion euros in cash, including the funds for potential losses on asset-backed securities.

Largest Shareholder

In the second step, Allianz will sell the remaining Dresdner stake to Commerzbank in return for new shares stemming from a capital increase. ``For this purpose an extraordinary general meeting is planned for the beginning of 2009,'' Commerzbank said.

In the end, Allianz will have a stake of almost 30 percent in the combined Commerzbank-Dresdner, making it the largest shareholder. The final size of the stake depends on the exchange ratio of Commerzbank-Dresdner shares.

``The deal will be very good for Allianz if they really won't have to guarantee more than 975 million euros of Dresdner's ABS risks,'' said Konrad Becker, an analyst at Merck Finck & Co. in Munich who recommends holding Allianz and Commerzbank shares.

Dresdner Woes

Allianz will keep Dresdner's Oldenburgische Landesbank AG unit. Dresdner owns 64.2 percent in the Oldenburg-based bank, while private investors own 10.5 percent and OLB- Beteiligungsgesellschaft mbH holds the remainder.

Allianz was advised by Goldman Sachs Group Inc., Shearman Sterling LLP and Ernst & Young. Leonardo & Co. will give a fairness opinion for Allianz and Rothschild for Dresdner Bank, Allianz said.

Allianz bought Dresdner in 2001, in its biggest-ever acquisition, with the aim of selling more insurance products through bank branches. Mounting loan losses at Dresdner and falling stock markets led to the insurer's first annual loss since World War II in 2002.

Allianz has since cut more than 18,000 jobs at Dresdner, or about 40 percent of the workforce, and shed about $48 billion of bad loans to revive profit at the bank.

BLOOMBERG