Hypo agrees €5.7bn takeover of Depfa Ireland's largest M&A deals

Depfa Bank, the Irish-based German-listed financial institution, has agreed a €5.7 billion takeover bid by property investment bank Hypo Real Estate in what will be the largest corporate acquisition in Ireland.

The cash-and-shares deal, which is subject to regulatory and shareholder approval, will result in 180 staff from Hypo moving to Depfa's Dublin headquarters, which will become the centre for the enlarged Hypo group's public sector financing division.

Hypo executive committee member Frank Lamby said Depfa's Dublin operations would assume more importance to the group following the takeover, which will create a bank valued at more than €10 billion.

The union between the two German banks came as a surprise to banking analysts when it was announced yesterday because they operate in different sectors. Depfa's main area of activity is lending to governments for infrastructure projects under public-private partnerships (PPPs), while Hypo lends to private sector developers building office blocks and shopping centres.

Mr Lamby said the new entity would have new growth opportunities in complementary businesses and an ability to cross-sell. "It is not a cost-cutting exercise but the coming together of two successful franchises," he said.

Hypo already employs 80 people at the IFSC in Dublin, close to Depfa's headquarters, where 300 people are employed.

Those 80 Hypo staff, plus another 100 Hypo employees from its infrastructure financing division, will become part of Depfa plc.

The bank will continue to be run out of Dublin as a subsidiary of the Hypo group, according to Depfa deputy chief executive Matthias Mosler. The new group will have around 2,000 employees. McCann FitzGerald advised Depfa on the deal, which will be executed through a scheme of arrangement under Irish law and is expected to be completed in the autumn.

Hypo will offer €5.7 billion in cash and stock - amounting to €16.14 per Depfa share. Some 58 per cent of the deal will be paid in Hypo group shares, with 42 per cent paid in cash. Depfa shareholders will receive €6.80 in cash for each share they hold. For every five shares they hold, they will receive one Hypo Real Estate share.

The deal is likely to be financially lucrative for Depfa executives. Depfa chairman and chief executive Gerhard Bruckermann had an interest in more than eight million shares in the bank as of December 2006, according to its 2006 annual report. At €6.80 per share, this puts the cash value of his holdings at €54.6 million.

However, management at both banks have bought into the deal. An employee share trust also held 8.7 million shares as of the end of last year on behalf of Depfa's employees. Under an incentive compensation programme, shares with a three-year vesting period are awarded to employees and directors of the group.

Credit rating agencies were upbeat, with rating agency Fitch saying it would upgrade Hypo's credit rating one notch to A+.

But while Depfa's shares rose 12 per cent yesterday, Hypo's stock fell 6.2 per cent. One analyst described the deal as "a leap of faith", while another pointed to modest margins and growing competition in public sector lending. Depfa's major PPP projects include the funding of the Thornton Hall prison in north Co Dublin and the Metro.

In Northern Ireland, it completed the funding of the Omega waste water project in February. (Additional reporting Reuters)

Ireland's largest M&A deals

July 2007:Hypo Real Estate Group buys Depfa bank,€5.7 billion

In a marriage of two German banks on Irish soil, Hypo's takeover offer of €5.7 billion for Depfa bank is the largest ever corporate acquisition in Ireland, valuing the new group at more than €10 billion.

November 2006:Riverdeep buys Houghton Mifflin,€3.98 billion

The education software group announced a $4.95 billion (€3.98 billion) reverse takeover of US publisher Houghton Mifflin.

May 2001:Vodafone buys Eircell, €3.3 billion

The long-mooted deal to buy Eircom's mobile arm was worth €3.3 billion in shares to Eircom shareholders when approved. This was €1.2 billion less than what it was worth when the deal was announced in December 2000. A disconcerting fall in Vodafone's share price was to blame.

July 2007:HM Riverdeep buys Reed Elsevier's education arm, €2.9 billion

With the ink on its Houghton Mifflin purchase not yet dry, HM Riverdeep shelled out for Reed Elsevier's educational publishing arm for $4 billion (€2.9 billion). After the deal, HM Riverdeep is set to have an enterprise value of more than $10 billion.

September 2005:Jefferson Smurfit Group merges with Kappa Packaging, €2.6 billion

The deal, valuing Kappa at €2.6 billion, created Smurfit Kappa - a company with an enterprise value of around €6 billion at the time - and helped transform what was "a small Irish box maker" to the biggest paper packaging group in Europe.