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Flexibility drives the miles

Issuer: Allianz Deal: market index-linked equity security (miles)Amount: e2 billionDate: December 14 2000Lead manager: UBS Warburg

What a great idea. Since a new tax law will allow German companies to sell their domestic stakes without the punitive 53% tax rate, insurer Allianz thought of how best to unwind their extensive cross-shareholdings.

It could have done a straight convertible, which it had indeed before and which had allowed Allianz to get the cash and the tax benefit now, instead of waiting for the law to come into effect on January 1 2002.

But it invented something better, something much more more flexible. Its e2 billion market index-linked equity security (miles) is similar to a mandatory exchangeable bond in that it will be converted into shares at maturity on February 20 2004 - with the option of early conversion after March 1 2002.

But the flexibility Allianz sought was created by the unusual feature that allows Allianz to exchange the miles into the shares not of one company, but of one of three German blue chips: BASF, E.ON or Munich Re. Plus, it can of course choose which one.

"This construction allowed us to make use of the shares we have in our portfolio that have upside potential," says Stephan Theissing, director of corporate finance at Allianz, and one of the developers of miles.

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