Aareal Bank AG
Hermann Merkens - Aareal Bank AG
Hermann Merkens - CEO - Aareal Bank
Pressure is increasing on the top management at leading real estate lender Aareal Bank to sell off its software unit Aareon, as an activist investor in the bank pushes the bank to reverse its strategy and threatens to call an extraordinary general meeting to force management to undergo an external review of its policies.
At the heart of the dispute is a difference of approach as to the role played by software division Aareon in the bank’s overall strategy.
The hedge fund Teleios Capital Partners has increased its shareholding in the listed Wiesbaden-based property financier from 3.4% to 4.5%, and at the same time described Aareal’s top management as ‘stubborn’.
Last month Teleios had urged the bank’s management to consider a sale of the Aareon software division, while the bank’s CEO, Hermann Merkens, wrote in a letter of response that the division is an ‘integral part’ of the bank, and a ‘key pillar’ in its refinancing strategy, in which it was continuing to grow and invest.
But Aareal also said the group was “assessing all relevant options”. It had made no decisions on the outcome and had no established preferences, Merkens wrote.
He said Aareal is open to talks with potential buyers of Aareon, and is working with Societé Générale and Deutsche Bank as its advisers, and maybe selling a majority stake in the division. Analysts have estimated this could value the unit at up to €600m. Teleios is claiming that an M&A Adviser with skills and experience in large software deals would be best placed to manage a sale, preferably of the entire unit, and believes its value could be as high as €700m to €1bn.
The software provided by Aareon helps professional landlords manage their properties and rental income streams, and permits customers to lodge rental income with Aareal, which helps Aareal in refinancing itself.
Teleios has now threatened to call for an extraordinary general meeting of shareholders should the bank continue to reject calls for a special independent review. The bank had said earlier this month that it WAS already conducting a strategic review, but Teleios countered that the move was ‘misleading’ and ‘falls well short’ of what it needed to see.
In a three-page letter to the bank’s management, which was subsequently made public, Teleios wrote, “The stubborn stance of the management serves neither the shareholders nor Aareon.” The conditions for Aareon to thrive could only be realized by being fully separated from the parent bank, it said. If only a minority share were sold, this would have a negative effect on the division’s long term shareholder value.
A second activist investor group, Petrus Advisers Ltd, which holds more than 2% of Aareal Bank, has now also weighed in with its support for Teleios’s call for a hiving-off of the software division.
