At that time, RHJI was in the transformation to a private bank. They bought Kleinwort Benson in 2010 from former Dresdner Bank (now part of Commerzbank) and were in the process of acquiring BHF Bank from Deutsche Bank.
Over the holding period RHJI was a regular contributor to my quarterly reports as news continued to flow. And news were not always to my satisfaction: the acquisition of BHF Bank took ages, holding costs and in particular management remuneration were way too high and the return to operating profitability was a bumpy ride. Consequently, I was tempted more than once to sell the position.
What kept me from pulling the trigger was the low valuation relative to other listed private banks and a change in the shareholder structure which came along the BHF acquisition. A number of co-investors (including Chinese investor Fosun and German billionaire Stefan Quandt) provided financing for the BHF acquisition and became RHJI shareholders at a later stage holding 45% of RHJI which was then renamed BHF Kleinwort Benson Holding (BHF KB).
After some positive news about operational progress, in Q2 2015 management came out with the news that BHF Bank’s CEO Björn Robens was dismissed by the bank’s board of directors. Björn Robens seemed to have close relationships with Fosun. Fosun was already holding 28.6% (before the removal of BHF Bank’ CEO, Fosun decided to increase its stake in BHF KB from 19.6% to 28.6%) in BHF KB (but was not represented on BHF Bank’s board). Fosun did heavily disagree with this decision in pulic and a couple of weeks later in July 2015, BHF KB received a EUR 5.1 per share takeover offer from Fosun.
BHF KB’s board and major shareholders made the clear statement that they do not welcome Fosun’s offer. In addition to that, Fosun seemed to run out of steam after a remarkable series of acquisitions over the last couple of years. On top of that, Guo Guangchang, Fosun’s CEO, was suddenly missing for a couple of days. Not the best precondition to acquire a German-Anglo financial institution and perhaps Fosun never intended to complete the acquisition. Existing market rumours were confirmed in November 2015, when French private bank Oddo et Cie backed by Societe Generale launched a counter bid of EUR 5.75 per share. In December 2015, Fosun withdrew its offer and signalled support for Oddo’s counter offer as other major shareholders and the board did as well.
Consequently, I believe that the acquisition will be completed according to plan. The offer price is close to current book value. Preceding Fosun’s offer, management regularly communicated with shareholders to reach sustainable profitability not before 2017 (pre tax profit target of EUR 60 m). In addition, competition in the private banking sector seems to have increased over the last years. Overall, this is not a great offer price, but it seems to be acceptable. A squeeze out and delisting of the shares following the offer seems to be a likely outcome giving minority shareholders little optionality. According to the offer prospectus, any subsequent increase in the offer price made by Oddo will be beneficial to all shareholders who already accepted the offer. So I decided to tender my shares.
Based on the current offer price the investment will realize a total return of 49.0% and an IRR of 21.0% over a 28 month holding period.
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