Failed Aareal Bank takeover attempt leaves only losers so far

After a months-long takeover battle, in which it seemed every blow and counter-blow was reported avidly in the business media, the attempted takeover of the Wiesbaden-based real estate financier Aareal Bank by financial investors Advent and Centerbridge, has failed.

In a statement by the two bidding investors' special purpose vehicle Atlantic BidCo GmbH, the bidders had failed to secure the minimum acceptance threshold of 60% of the votes. The €1.86bn bid offer has therefore lapsed, and will be rescinded, the statement said. The share price of Aareal Bank fell by up to 9% on the news, but seems to have stabilised.

The takeover bid by the private equity investors had been supported by Aareal Bank's management and supervisory boards. Jochen Klösges, chairman of the management board, said: "We supported the offer because it was in the best interest of the company and its stakeholders from a strategic perspective." He added that the result was a clear rejection of the takeover bid by existing shareholders. "Our shareholders want to continue to accompany us on our path of sustainable value creation," he added.

The failure of the bid will be viewed as a victory for activist investors Petrus Advisors and Teleios, who with more than 20% of the shares under their control, had fought against acceptance. But it's not clear if they can claim any tangible results yet from their engagement with Aareal Bank, and much will depend on what happens in the future.

Under pressure from investors, Advent and Centerbridge had previously raised their offer for Aareal Bank from €29 to €31m, while lowering the minimum acceptance threshold in mid-January from 70% to 60%. Their stated aim was to invest heavily in the bank and its IT subsidiary Aareon, while expanding the bank's loan book. It had planned to cancel shareholder dividends, and instead reinvest profits back into the group.

Now it looks as if the SDAX-listed bank will revert to renewing its efforts to focus on its medium-term strategy, of boosting its main business of real estate financing. This will mean increasing its lending volume by €1bn annually for the next three years, building the loan book to €33bn. In its latest financial year, the bank had reached its €30bn lending milestone, so the target should be realistic, said CFO Marc Heß in the Aareal statement.

It was not clear how much the bank plans to invest in its IT subsidiary Aareon, considered to be the pearl among the bank's assets, other than the bank saying it planned an active programme of takeovers and share participations in promising candidates. (Aareon's value is thought by some to be worth more than its parent company itself.) Aareon's software helps landlords to manage their incoming rents. A side effect of this is that billions of euros in rents and deposits end up in Aareal Bank, helping the bank to lower its refinancing costs.

Activist investors Petrus Advisors and Teleios are still urging a strategy for the bank that sees Aareon being hived off as a completely separate entity, and realising the IT division's value for the benefit of shareholders. As a long-term shareholder in Aareal Bank and a 30% shareholder in Aareon, Petrus Advisors is also demanding the removal of five board members, including the head and deputy head of the Supervisory Board.

Fellow activist investor Teleios also plans to remain active within Aareal. Its founder, Adam Epstein, said he believed the company was worth at least €40 per share, and it should wait until it receives a commensurate offer. A third shareholder, Czech billionaire Daniel Kretinsky, with an 8% shareholding, had supported the takeover offer. It's unclear whether he has the stomach or the interest to wait around for the long haul.

For 2023, Aareal Bank is targeting an operating profit of about €300m, and it expects to reach its pre-pandemic volumes and income figures as early as this (2022) financial year. Operating profit in 2019 was €248m.

It's also good news for shareholders, who will see the dividend restored. At the forthcoming AGM the board will now propose a second payout of €1.10 to previously disappointed shareholders. It helps that the European Central Bank has relaxed its pandemic-driven policies on banks paying out dividends.

But the shareholders meeting in May is likely to be coloured by a whole set of new battles as to who gets to sit on the Aareal board, and determine the future of the bank.