Deka deal could pave way for WestLB merger: sources

FRANKFURT (BestGrowthStock) – German fund manager Deka (DSUGUD.UL: ) is mulling a deal with its shareholders that would pave the way for a possible merger with ailing landesbank WestLB (WDLG.UL: ) and Helaba, several people familiar with the matter said.

Under the deal, Deka would buy back stakes in itself from its shareholders, ending uncertainty over its ownership structure that would hamper any merger talks.

Deka is half-owned by state-controlled German landesbanks, while municipally owned savings banks own the other half.

“Negotiations about a final shareholder structure are ongoing, taking into account the intentions of all involved parties,” one of the people familiar with the matter said.

One of the shareholding landesbanks, Stuttgart-based LBBW (LBBW.UL: ), has to sell its 15 percent stake in Deka next year to comply with a European Union ruling.

Other landesbanks such as WestLB, HSH Nordbank (HSH.UL: ), BayernLB (BAYLB.UL: ) and NordLB (NDLG.UL: ) — with stakes of about 3-10 percent each — also want to sell their stakes, people familiar with the matter said.

The savings banks could buy these stakes to boost their holding in Deka to above 75 percent and take control of the company, which is valued at about 4-5 billion euros ($5.5-6.8 billion), a person close to the savings banks said.

But there is still disagreement over the price, and some of the savings banks are unwilling to pay large amounts of cash.

A compromise could be that Deka uses its own funds to buy back own shares from the landesbanks that are looking to sell, several people said. That would help increase the savings banks’ holdings, without requiring them to stump up cash.

“Deka is overcapitalized and could easily free up some capital, which could be used to buy own shares,” said one person, adding no final decision had been made yet.

“We hope that an agreement on Deka can be reached within the first couple of months next year, but it is a very complicated matter,” another person close to the negotiations said.

Deka, the savings banks and the landesbanks declined to comment.

DEAL OR NO DEAL

A deal on Deka’s shareholder structure is seen as a prerequisite for a possible merger of Deka with WestLB, Frankfurt-based Helaba (HLHTG.UL: ) and possibly other landesbanks such as NordLB (NDLG.UL: ).

“Without a Deka agreement that has the backing of the savings banks there will be no WestLB deal,” a source close to the savings banks said.

WestLB and peer BayernLB broke up merger talks earlier this month, leaving the possible merger with Deka and Helaba as the only option of consolidation within the landesbank sector.

In a parallel move, Duesseldorf-based WestLB, which lost billions in the financial crisis and had to be bailed out by the state, has launched a sales process, which is to be completed by the end of 2011.

But experts see a merger with rival landesbanks as the most likely option.

EU Competition Commissioner Joaquin Almunia — who recently said WestLB may have to be wound down — is due to meet with WestLB and its owners on Monday to talk about perspectives of the bank and its restructuring plan.

But according to sources, no agreement is expected to be struck yet in disputes over the restructuring charges.

(Reporting by Arno Schuetze and Angelika Gruber)

Deka deal could pave way for WestLB merger: sources