The German government offered 1.39 euros per share on Thursday for stricken lender Hypo Real Estate
The offer for the Munich-based bank was widely expected after Berlin pushed through a law earlier this month that gives it powers to forcibly take over institutions whose collapse poses a risk to the financial system.
The German government announced in January it planned to take control of HRE, a key player in the Pfandbrief covered bond market, after the bank received 102 billion euros ($135.5 billion) in guarantees, mostly from the state, without any improvement in its financial condition.
The offer price represents a 15.8 percent premium over HRE's closing share price on Wednesday of 1.20 euros and a 10 percent premium to a minimum offer price of 1.26 euros set out in the new law.
But it is unclear whether it will convince U.S. private equity investor J.C. Flowers, whose firm of the same name controls nearly a quarter of HRE stock, to sell.
A spokesman for Flowers said the U.S. investor, who bought the stake last June for 22.50 euros per share, would study the offer and reiterated that the firm's preference was to remain a shareholder in the bank.
Berlin pushed through its expropriation law after failing to agree a takeover price with Flowers.
It hopes the offer will allow it to secure majority control of HRE, a step that would permit it to push through a capital increase at an upcoming shareholder meeting, reach the 90 percent threshold necessary to squeeze out other shareholders, and avoid the need for an expropriation.
The government has said it needs full control of the bank to push through a restructuring.
PREMIUM REDUCES RISK
By offering a premium over the 1.26 euros legal minimum price, Berlin hopes to convince Flowers to sell and simultaneously reduce the risk of subsequent legal action from the U.S. investor.
Flowers has an incentive to agree to the 1.39 euros price, because if the government reached the 90 percent threshold and squeezed him out, it would only be obliged to pay the legal minimum price of 1.26.
Still, by paying a premium, Chancellor Angela Merkel's government is running the risk of alienating voters in an election year.
HRE shares were up 15.0 percent at 1.380 euros at 1001 GMT on Thursday.
Matthias Duerr, an analyst at DZ Bank, said the offer price far exceeded his fair value estimate of 0.10 euros per share, a level that reflects HRE's negative equity capital, forecast losses and high capital requirement.
We consider the takeover bid to be attractive and recommend accepting it or selling the shares on the stock market if the price exceeds 1.39 euros, Duerr said in a research note.
Berlin took an initial 8.7 percent stake in HRE last month, paying 3 euros per share in a capital increase, on the same day HRE posted a 2008 pretax loss of 5.38 billion euros and said it expected to stay in the red for at least two more years.
The offer price values the shares the government does not already own at 290 million euros.
The idea of expropriation is highly controversial in Germany because it is associated in the minds of many citizens with seizures of property by the Nazis in the 1930s and by the communists in East Germany after World War Two.
From an investor's point of view, it is not desirable that banks are nationalized, said Dieter Ewald, a fund manager with investor Frankfurt Trust. But there have to be exceptions. Hypo Real Estate is one such example of a bank that had to be saved.
(Reporting by Noah Barkin, Maria Sheahan and John O'Donnell, editing by Will Waterman and Mike Nesbit)