The sale of the real estate financier Aareal Bank has burst. Now activist investors want to replace five supervisory board members

Frankfurt After the failed takeover of Aareal Bank by the bidder consortium Atlantic Bidco, the activist investor Petrus Advisers attacked the bank’s supervisory board and management board. “We welcome Atlantic Bidco’s rejection of Aareal’s attempted takeover,” said the London-based hedge fund. “Petrus Advisers has invested in Aareal for the long term and, as the largest investor, now expects rapid changes in the management bodies.”

This means above all access to the supervisory board of the Wiesbaden real estate financier: Petrus Advisers not only demands that the candidates proposed at the extraordinary general meeting on December 9th replace the court-appointed supervisory board members Friedrich Munsberg, Holger Giese and Ulrich Theileis.

The activist investor also demands the resignation of Supervisory Board Chairman Hermann Wagner and his deputy Richard Peters and wants to propose “independent” successors for both.

Petrus Advisers justified this by saying that Wagner and Peters had supported the now failed takeover bid by the bidding consortium, which is backed by the venture capital firms Advent and Centerbridge and the Canadian pension fund CPPIB. Petrus Advisers had rejected the offer of EUR 31 per share, which corresponds to EUR 1.86 billion, as too low.

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Since a large number of Aareal shareholders took a similar view, the trio of bidders missed the acceptance threshold of 60 percent they had set themselves. The takeover bid has thus expired and will be reversed, the bidders announced on Friday evening. The share price then fell by 7.8 percent on the Tradegate trading platform.

Happy about the rejected offer

The founder of the hedge fund Teleios, Adam Epstein, was pleased that the shareholders had rejected the “completely inappropriate offer”. Investors should wait for a fair offer, which Epstein believes should be at least EUR 40 per Aareal share. Teleios also wants to stay on board with Aareal and called on the bank’s board of directors to ensure that such “obviously opportunistic” takeover bids no longer occur.

>> Read here: Telekom, Bahn, Porsche: These deal fantasies fuel investment bankers’ hope for another boom year

Petrus and Teleios together control around 20 percent of the shares. Since both had openly rejected the purchase offer, the takeover attempt was considered difficult from the start. The fact that the Czech billionaire Daniel Kretinsky supported the bidders’ offer, according to financial circles, led to more hope among the bidders at the beginning of the week. After all, according to data from the Bloomberg information service, Kretinsky controls almost eight percent of the shares in the real estate financier.

However, it is unclear whether and when a better offer could actually be made: In market circles it is said that the Atlantic Bidco bidder group will probably not make a new attempt to buy Aareal Bank.

The compilation and coordination of a bidder group is tedious, it said. The fact that the composition of the bidder consortium had changed during the takeover battle – the pension fund CPPIB replaced the financial investor Towerbrook – is seen by observers as a sign of how difficult it would be to forge a group of investors that could make a higher offer. The bidding group declined to comment on this.

Shows of strength to be expected at the Annual General Meeting

Now there is likely to be another showdown between the activist investors and Aareal Bank at the Annual General Meeting in May.

Should the major shareholder prevail with his personnel wishes at the Annual General Meeting, he would nominate the majority of the Supervisory Board members from the capital side with the candidates he has selected: Aareal Bank’s supervisory body consists of twelve members, eight of whom represent the owner side and four the employee side. At the same time, almost half of the entire board would then consist of newcomers who hardly know the bank.

At the Annual General Meeting in December, Petrus Advisers failed in its attempt to gain partial control of the Supervisory Board: although the shareholders voted out three Supervisory Board members, the Petrus candidates did not receive their own majority.

But that was probably also due to the fact that the major US bank Morgan Stanley had not registered the votes of the hedge fund Teleios, which usually supports the same goals as Petrus Advisers, in good time. In January, the Frankfurt Higher Regional Court then appointed Friedrich Munsberg, Holger Giese and Ulrich Theileis as replacements at the suggestion of the bank.

>> Read here: Dispute with major shareholder: Aareal Bank enforces new supervisory board members in court

Aareal Bank’s hopes are now likely to be that the composition of its shareholder structure will change by May: In the course of the takeover attempt, many hedge funds, some of which specialize in takeover situations, had bought into Aareal Bank. Your interest in the institute could now wane.

On the other hand, Aareal Bank could now become more interesting again for its traditional investors, for whom a reliable dividend policy plays a major role.

The ECB’s ban on dividends for banks in the 2020 pandemic year alienated some of these investor groups. The ECB has now eased its dividend policy again. After the official failure of the purchase offer, Aareal Bank announced that it would propose the second dividend tranche of EUR 1.10 per share, which it had retained due to the takeover bid, for distribution at the next Annual General Meeting.

CEO Jochen Klösges also confirmed the goal of achieving a group operating result of around 300 million euros by 2023. This level could be significantly increased again in 2024. Klösges is confident of achieving a profit as early as 2022 that will approach the level before the corona pandemic. In 2019, the group operating result was 248 million euros.

Another point of contention is likely to remain with the institute: Petrus Advisers renewed its demand to spin off the software subsidiary Aareon, in which the financial investor Advent holds a 30 percent stake. The bank’s management had always rejected this plan on the grounds that a sale would damage the value of the bank and the value of the IT subsidiary.

The bank also recently pointed out that such an outflow of assets from the bank would require “coordination with the regulator”, i.e. the permission of the banking supervisors of the European Central Bank (ECB).

In the past, the ECB had repeatedly warned against outflows of assets such as high dividends. In addition, bank supervisors are increasingly paying attention to the sustainability of banks’ business models – which also includes expanding the sources of income, especially commission income. For these reasons, it is considered very unlikely in financial circles that the ECB supervisors would approve an Aareon spin-off.

More: Financial institutions are particularly common targets for activist investors

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