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German bank deal collapses
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July 26, 2000: 9:44 a.m. ET
Dresdner and Commerzbank walk away from $44B merger
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LONDON (CNNfn) - A $40 billion-plus German banking merger collapsed Wednesday as Dresdner Bank AG and Commerzbank AG failed to agree on how to value the deal.
"In view of the complexity of the topic, it seems impossible to produce a plan that reflects the interests of all parties," said Commerzbank in a statement Wednesday. It added that it would "concentrate on strengthening its European links," as well as Internet and investment bank operations.
Germany's third and fourth-biggest banks had been in discussions for six weeks about a merger that would have created the second largest bank in Europe in terms of assets, behind Deutsche Bank.  It would have been valued at $44 billion on the market.
The relative valuations of the two firms became a stumbling block, with Commerzbank executives holding out for an equal share of any enlarged company, while Dresdner's directors wanted 60 percent and above, a person close to the talks told CNNfn.com.
"Shareholder value was the main factor in the equation," the person said. "They couldn't agree on an option that was sellable to the markets".
The deal hit the rocks in the past week, after insurer Allianz AG, Dresdner's largest shareholder with 22 percent, reviewed the merger proposals and sent the banks away to come up with a better plan.
A London-based analyst who spoke on condition of anonymity told CNNfn.com the collapse of the talks was a "disaster", and he warned that Dresdner's full-year earnings are likely to be below previous estimates, given the significant amount of management time spent on the bank's two failed mergers. He described the bank's situation as "desperate", saying dismemberment of the consumer, investment banking and asset management arms is now a realistic option. 
Dresdner tried to merge with Deutsche Bank AG (FDBK) earlier this year, but that deal fell apart after disputes over the role of its investment banking unit, Dresdner Kleinwort Benson.
Despite a recent fall in both banks' shares, Dresdner's market value of about  25 billion remains greater than Commerbank's 19 billion. Commerzbank's value has been inflated by the persistent merger speculation surrounding the bank over the past two years.
Dresdner CEO Bernd Fahrholz did not rule out cooperation talks with other banks. "If both (Dresdner and another bank) find common points in a
common strategic plan, then there is a strong basis to talk," he told a news conference. But he said no talks were currently planned.
Commerzbank's largest shareholder, CoBRA, has opposed any deal with Dresdner, arguing Germany's fourth-largest bank should seek a tie-up with a European partner outside Germany. However, the German banking regulator has barred CoBRA from using the voting power attached to its 17 percent stake.
Commerzbank (FCBK) stock rose 1 percent to 37.90 in Frankfurt trade Wednesday, reflecting the belief the company could be a takeover target for an overseas player, while Dresdner (FDRB) shares slid 4 percent to 45.75.
 Fahrholz has only been in Dresdner's top post since April, after his predecessor stepped down to take responsibility for the previous merger debacle. In May he made a big play of his strategic plan to keep Dresdner independent, and cut costs by closing branches. Shortly afterward he began talks with Commerzbank.
Allianz pledged its support for Fahrholz and his management team Wednesday, praising him for his commitment to holding out for fair terms for Dresdner shareholders.
Dresdner said in a statement Wednesday, "It was impossible to bring together the different interests of all the parties involved." Fahrholz added: "We have positioned Dresdner for a successful future." 
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