August 2007
Real estate finance: Hypo drive a fast bargain
by Alex Chambers and Jethro Wookey
Hypo Real Estate has agreed to buy Depfa Bank for €5.7 billion. The announcement came as a big surprise to many in the market. Unlike the protracted ABN Amro bid, the deal appears to be free of hindrances. There had been speculation that Dexia SA, Europe’s biggest public sector financier, would come in with a bid. However, despite Depfa’s shares having risen nearly 6.5% early in July as a result of such speculation, an offer never materialized. Hypo Real Estate’s takeover will create a public sector lender to rival Dexia. Dexia has some €271 billion held in public sector and infrastructure assets. Depfa and Hypo combined have €254 billion.
Hypo Real Estate is predominantly a commercial real estate lender. Depfa’s strength lies in public sector funding; in Europe it is second only to Dexia in this market. Both banks are active in the Pfandbrief market but Depfa’s success internationally with its Irish ACS issues will be especially appealing to Hypo. "As a result of the acquisition of Depfa, we will create the opportunity for bringing the strategic further development of our group to a leading international level at a stroke," said Georg Funke, CEO of Hypo Real Estate, in a statement on July 23.
From a capital markets perspective the merger should raise the profile of the funding operation of the banks. Depfa has a highly professional funding operation based in Dublin; whether it will remain there is not yet clear. HRE has recently established an Irish arm. The combined annual financing requirements of the two banks in senior, covered and securitized bonds would have amounted to €24.6 billion in 2006.
Analysts say that the combined company will be less susceptible to cyclical swings, as well as having increased profitability. The offer amounts to a 17% premium over Depfa’s share price at the time of the offer. The deal still needs to be approved by the Irish high court, as well as by a minimum 75% of Depfa shareholders, but no problems are expected. The deal should be completed in early October.
