Deutsche Bank cuts loose from hostile takeover
Deutsche Bank's unexpected exit last week from the battle for control of BIG Bank Gdanski (BIG BG) has scuppered its plans to secure a major Polish financial institution, leaving it with a financially troubled regional bank and a small greenfield corporate operation.
The German bank said it would sell its 19% stake in retail and corporate BIG BG to Banco Comercial Portugues (BCP) and its supporters. BCP and pan-European insurer Eureko hold a 25% stake and with BIG BG's management had opposed Deutsche's takeover bid.
"We decided to grow out of our own position (in Poland) and to sell our stake to the other shareholder group," said Ronald Weichert, Deutsche's press spokesman in Frankfurt, adding that a protracted battle for BIG BG "would be too time consuming."
Deutsche ally Raiffeisen Zentralbank also announced that it would sell its 10% stake. When around 4% of BIG BG shares changed hands last Tuesday, dealers said that the transactions indicated the Deutsche camp had begun its retreat. Weichert said that the German bank will sell the shares at a higher price than it bought them for. "You can be sure we will sell (the stake) in a profitable way," he said.
Analysts, however, were quick to point out that Deutsche's hostile bid gave it a PR problem that was ultimately bad for business. "It was the wise thing to do, it was very damaging for their image," said Jean Pierre Lambert, an analyst at HSBC Securities. Moreover, the battle for control could have dragged on indefinitely, giving Deutsche further bad publicity, he said.
According to HSBC Securities, at the end of 1999, BIG BG's total assets reached zl. 16.09 billion ($4.13 billion), up 26.9% from 1998, while net profit shot up 171% to zl. 337.1 million ($86.44 million). Rated tenth among Polish banks in terms of total assets, with a 3.7% market share, the fight for BIG BG made it Poland's best performing stock in 1999 as its share price skyrocketed 303%.
Deutsche spent over a year in its takeover bid for BIG BG, buying shares from smaller investors, and until now, together with its allies, controlled around 50% of votes. The bid became particularly controversial from January when state-owned insurer and 8.6% stakeholder in BIG BG Powszechny Zaklad Ubezpieczen (PZU) voted with Deutsche and its allies at a BIG BG shareholders meeting to wrest control of its supervisory board.
While that put BIG BG's management on the defensive, filing for an injunction to prevent PZU from selling its stake to Deutsche, the battle for control became mired in a political war of words. The Treasury Ministry was infuriated that Deutsche was vying for control of PZU in which BIG BG has a 10% stake until the German Bank declared it was not interested in getting a foothold in the country's largest insurer. Simultaneously, it was reported that left-wing politicians were upset at Deutsche's eventual control of BIG BG because it threatened their electoral campaign funding plans. BIG Bank, before its merger with Bank Gdanski, had been founded by politicians from the former SdRP wing of the Democratic Left Alliance (SLD) party, and consequently they had easy access to its credit facilities.
From early March, Deutsche, BCP, Eureko and BIG BG's management were negotiating to settle the bank's future. At the time, analysts believed that BCP was ready to give up its stake to Deutsche, which would then launch a public call for the remainder of BIG BG stock. But the German bank's decision to withdraw from the battle caught the market off guard.
"This was unexpected, everyone thought that Deutsche was so strong that it would push for control," said Artur Szeski, an analyst at CDM Pekao Securities. Analysts said BCP's reluctance to let BIG BG go to a foreign bank was the other reason for Deutsche's pullout. The Portuguese bank has a 45% stake in BIG BG's retail arm, Millennium, and when investing abroad operates as a minority shareholder with a local partner, said Antonio Cunha Vaz, BCP's press spokesman. BIG BG has the remaining 55% stake in Millennium. "BCP feels unfairly treated, it has invested a lot of senior management time and still wants a presence in the Polish banking sector," Lambert said.
But while Deutsche begins to work on limiting the damage to its image, its decision may have helped BIG BG's image too, he added. Should the conflict have continued, "BIG BG would deteriorate and lose clients as people shifted their money elsewhere," Lambert said. This happened earlier this year due to falling confidence in the bank from the bad publicity it suffered over its disputed ownership structure, he said.
With Deutsche's exit from the BIG BG takeover bid, the bank is now left with its corporate banking operation, Deutsche Bank Polska, and the financially troubled retail and corporate Bank Wspolpracy Regionalnej (BWR), both of which have a less than 1% market share.
Ironically, Deutsche bought and rescued BWR to curry favor with the Banking Supervisory Committee (KNB) in its bid for BIG BG, said Robert Sobieraj, an analyst at Centrum Operacji Kapitalowych Banku Handlowego.
But analysts said that without a larger local base, the road ahead will be difficult because greenfield operations take a long time to build a successful presence, while corporate banking is becoming more competitive. Weichert said that Deutsche's strategy now is to strengthen the branch networks of both operations, but did not comment further. However, "we are open to future co-operation agreements and acquisitions," he said. Nonetheless, the Treasury Ministry has ruled out the sale of the last two state-owned banks, Powszechna Kasa Oszczednosci Bank Polski (PKO BP) and Bank Gospodarki Zywnosciowej (BGZ), to foreign investors. Consequently, according to Sobieraj, Deutsche would be excluded from buying a Polish bank for the moment and has lost its position until the next wave of consolidation hits the Polish banking market in a few years' time, he said.
However, analysts said Deutsche could return to the market by buying a competitor. "It can acquire a European bank already present in Poland if it is frustrated with the BIG BG attempt and it has the means to do so," Lambert said. But while the Polish market is potentially lucrative, Deutsche's plans here will not drive future mergers, Szeski said.
