After a week of intensive negotiations, Allianz AG and Dresdner Bank, announced an agreement to join forces to create the Germany’s largest financial institution. The boards of both companies approved the merger plan over the weekend. Allianz will acquire the remaining 78.6 percent of Dresdner it doesn’t already own for a base price of €53.13 ($46.50) per share, valuing the deal at around $21.6 billion. Dresdner shareholders will be offered one Allianz share and €200 ($175) for each 10 Dresdner shares.
The move signals the end of an ongoing saga, which saw Dresdner twice seek other partners. It came close to making a deal with Deutsche Bank, Germany’s largest bank, last year, but that fell through when it became clear that DB intended to sell off the investment banking division Kleinwort Benson (The name has since been changed to Kleinwort Wasserstein following Dresdner’s acquisition of Wasserstein Perella, last year). Dresdner’s lagging performance was the main reason Allianz wanted to sell off its interest, but as Allianz board member Paul Achleitner said, “The market environment has significantly changed.” Allianz plans changed, too.
The link up with Dresdner recognizes the increasing importance of “the future-oriented markets of ‘asset management’ and ‘old-age provision'”. The announcement notes that, “Especially in Germany the pension reform is generating sustained momentum in these areas and annual growth rates in excess of 15 percent are anticipated.” Allianz-Dresdner will combine “17 million clients in Germany through its network of 12,000 agencies” with Dresdner’s “6.5 million clients through its 1,200 branches.”
The new group will be in a position to compete with giants like Citigroup. Its total global assets under management, which includes San Diego-based Nicholas Applegate and PIMCO of Newport Beach, both of which Allianz purchased last year, will be close to $1 trillion. The deal also needed the approval another German insurance giant, Munich Re, which owns 25 percent of Allianz, 6.4 percent of Dresdner and 40 percent of Germany’s largest life insurer Allianz Leben.
In exchange for ceding these interests, Munich Re will receive Allianz’ 17.4 percent share holding in Hypovereinsbank, Germany’s second largest, which would give it a stake over 25 percent, enough to propose deals and block others. If it then follows through on its plan to purchase the outstanding shares of retail insurer Ergo Versicherungsgruppe, Germany’s second largest, it would own 95 percent of that company as well, and would have a formidable network of its own through its 17,500 agents and HVB’s branch network. Often called “the sleeping giant” of German finance, Munich Re seems to be waking up.
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