A group of investors led by US private equity firm JC Flowers has bought a 24.9%-stake in Hypo Real Estate.
JC Flowers, Grove International Partners and Shinsei Bank paid €1.1bn for the stake, which they bought from a Hypo Real Estate investment vehicle.
The cash offer amounts to €22.50 per share, which is a 25.3% premium to the weighted average price over the three months previous to 15 April.
Hypo Real Estate’s share price rose on the news. The price had fallen sharply since the bank announced a €390m charge in the fourth quarter to cover exposure to US collateralised debt obligations (CDOs). HRE’s management had repeatedly insisted that the company had not been hit by the subprime crisis.
Some analysts believed that the deal showed that JC Flowers had faith in the current management team and that the situation at HRE is a workable one. JC Flowers must have felt confident enough to complete the deal after having seen the books, they said.
Others dismissed the deal. Analysts at Citigroup said that they “struggle to see hidden value or any quick wins to boost the value of the company”.
“With CDO exposures, tight capital ratios, and rising fund costs, HRE is vulnerable to a further downturn in real estate markets, driving higher loan losses,” the Citigroup analysts said in a note.
The stake sale does not strengthen the bank’s capital base because it involves existing shares. By contrast, Royal Bank of Scotland plans to raise £12bn (€15bn) by issuing new shares to improve its balance sheet.
In August 2006, JC Flowers bought a 26.6%-stake in HSH Nordbank for €1.25bn. JC Flowers has since been thought to be looking at floating the bank.
