Hypo board fails to recommend JC Flowers bid

Hypo Real Estate has left shareholders in limbo by saying it cannot recommend either acceptance or rejection of an approach by US firm JC Flowers to acquire 24.9 percent of the company.

Shareholders in Hypo Real Estate have been told they must make up their own mind over an offer by US firm JC Flowers, Grove International Partners and Japan's Shinsei Bank to acquire 24.9 percent of the bank.

Both the management and supervisory board of Hypo, a German real estate lender, said they continued to welcome the offer because it could lead to “stabilization” of the company and facilitate long-term planning. However, the boards also said they could not recommend shareholders either accept or reject the offer pitched at €22.50 a share because the “current intrinsic” value of the shares was “significantly higher” than the offer price.

JC Flowers and its partners revealed their offer on April 16, representing a premium of around 20.5 percent to the three month weighted average.

The board said in its joint statement: “The offer may appear beneficial to HRE shareholders interested in realising capital gains in the short term, or avoiding potential capital losses. [But] The assessment depends, amongst others, on the individual acquisition date and the shareholder’s personal tax circumstances.”

Georg Funke, chief executive, reiterated the company's stance at the  annual general meeting in Munich today. He said: “The current intrinsic value of HRE shares is significantly higher than €22.50, which would argue against acceptance of the offer. Against this background the offer may appear beneficial for shareholders who are interested in realising short term disposal gains or possibly avoiding disposal losses. This assessment, inter alia, depends on when you acquired the shares of Hypo Real Estate.”

Funke also said the fact that the group had no shareholders owning more than 5 percent of the company made it a target for investors seeking “short-term arbitrage profits” rather than long-term investment. However, he added that the offer by  JC Flowers was welcome in principle. “We believe that such a shareholder, who in our opinion has a good understanding of the business model of our group, could be a stabilising factor in the group of shareholders. It remains to be seen how you, our shareholders, will decide with regard to the offer, which can still be accepted until 23 June.”

OIn additon he used yesterday's AGM to also tell shareholders the subprime crisis had led to “previously unparalleled turmoil” in international markets and said the group was “shocked” at the reaction to its disclosure of write downs related to the subprime issue in January.

He called the first quarter of the year “one of the most difficult for many years” and pointed out some institutions had “disappeared entirely” from the market while other banks had reported significant losses and had to carry out capital measures.

Operating revenues in 2007 fell to €1.46 billion from €1.86 billion in 2006, though the results were affected by the acquisition of the public sector and infrastructure bank DEPFA last year. “As far as the performance of our share price is concerned, we are of course anything but satisfied with the performance of last year, and particularly with regard to the performance seen in the initial months of 2008,” said Funke.

Shares were still trading at levels in excess of €50 at the beginning of last year, but then fell 24 percent making Hypo one of the worst performers on the German DAX. “We were not able to escape the effects of the general negative market sentiment with regard to real estate shares as a German banking stock focussing on real estate financing after the outbreak of the subprime crisis in the US,” said Funke.