Aareal Bank recommends shareholders to accept €1.7bn takeover offer

It looks as if property lender Aareal Bank is about to disappear as an independent listed German lender following the submission of a takeover bid by private equity investors Advent and Centerbridge valuing the bank at €1.74bn. The Aareal Bank management has recommended to shareholders to accept the offer.

Advent and Centerbridge are offering €29.00 per share in cash for the SDAX-listed bank, which represents a premium of about 23% over the closing price of 6th October, the day before the takeover talks were officially made known (reported upon here in REFIRE). It is also a premium of 35% over the volume-weighted average Aareal share price over the prior three months. The two investors have launched a new company, Atlantic BidCo, to formally make the offer, which is conditional upon a minimum acceptance level of 70%.

The bidders said in a statement that they viewed themselves as long-term investors, and have no plans to break up the bank. Advent Germany CEO Ranjan Sen said, "We want to invest in the group to further develop the bank's segments." Centerbridge Europe's CEO Ben Langworthy said he was "convinced that with a stable shareholder base, Aareal Bank can better focus on its longer-term goals." The intention was, said the two bidders, to strengthen the bank's position as a "leading international provider of property financing as well as software, digital solutions and payments services".

Aareal's recently-arrived new CEO Jochen Klösges said that, with additional capital, Aareal would be able to expand new-business underwriting more than previously planned, and the offer was in the best interests of the company, although, as he stressed, "We did not go looking for this discussion - the investors came to us." He added that, "In contrast to current speculation, there will be no break-up of the company", a reference to the media speculation surrounding the value of the bank's software subsidiary Aareon, for which Aareal had originally brought Advent on board as a 30% shareholder last year for about €260m.

In its financing business, Klösges reiterated that the Wiesbaden-based Aareal wants to increase its loan portfolio by about a third to €40bn over the next five years. The bank has suffered through the COVID pandemic because of its exposure to the struggling hotel sector, in addition to its regular lending to offices, retail and logistics - but not residential, which has proved the most resilient asset class in Germany through the coronavirus slowdown.

A further injection of funding from Advent would help Aareal, along with the cancellation of the dividend, which together could give the bank nearly €1bn to reinvest in its lending portfolio.

There is already some opposition from existing shareholders to the takeover offer from Advent and Centerbridge, which has Morgan Stanley giving it strong support. A further Aareal investor, the hedge fund Teleios, who owns a 6% stake is opposed to the offer, which it says is cutting corners, to the disadvantage of shareholders.

Adam Epstein, co-founder of Teleios, said his company would act to ensure that Aareal's board stages "a professional, structured sale process in the new year". Teleios, along with fellow activist investor Petrus Advisers, has long been a vocal critic of the bank's management board and have been pushing for a hive-off of the IT subsidiary Aareon, to realise its full value.

Another dark horse is Czech investor Daniel Kretinsky, who recently increased his stake in the bank from 3.08% to 7.80%, but whose intentions are still unclear. Kretinsky is well-known in Germany as an investor in coal mines and in listed retail giant Metro, as well as holding stakes in media group ProSieben Sat1 and London football club West Ham. There is some speculation that Kretinsky's late involvement in Aareal might suggest the bidders may have to up their offer to get across the 70% goal line.

Till Hufnagel, the head of Petrus Advisers which has nearly 16% of Aareal's share, has been outspoken in his criticism of new arrival Jochen Klösges, who stepped in as head of the bank as recently as September when his predecessor Hermann Merkels retired due to ill health.

Hufnagel has openly attacked Klösges as being "not the right man to run a software company", a reference to Aareon, the jewel in Aareal's crown. The Aareon products are often described as the "SAP for housing companies" because of their value in enabling landlords to manage complex housing portfolios.