Dresdner bids for Kleinwort

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The Independent Online
JOHN WILLCOCK

Financial Correspondent

Dresdner Bank made a cash offer for Kleinwort Benson yesterday, valuing the UK merchant bank at just under pounds 1bn.

Kleinwort said in a statement that Dresdner had asked it to recommend the bid. It is understood Dresdner has offered 725p per share, valuing Kleinwort at under pounds 980m, or twice book value.

Last night Kleinwort's shares closed down 5p to 719p, as the market took profits after a spectacular run based on bid speculation. Analysts expect Dresdner may end up paying nearer 7.50p per share, or pounds 1bn.

Kleinwort's shares have risen from 555p since March on bid speculation. Most analysts then expected a bid of around pounds 8.50p per share, valuing the bank at pounds 1.145bn.

Kleinwort appears to be following fellow UK merchant banks Barings and SG Warburg into foreign hands, with many in the City regarding it as virtually a done deal. The move is also seen as confirming London's status as the pre-eminent European financial centre. It comes after Deutsche Bank's acquisition of Morgan Grenfell, ING's rescue of Barings and Swiss Bank Corporation's takeover of SG Warburg.

Kleinwort's statement that Dresdner, Germany's second-biggest bank, wanted to value Kleinwort "at around its current market price" prompted counterbid speculation.

Kleinwort's statement did not elaborate about price. It continued: "The board of Kleinwort Benson has agreed to explore what benefits could result from a combination of the businesses. A further announcement will be made in due course."

Sources close to Kleinwort, the last independent investment bank of any size in London apart from Schroders, expect the deal to be sewn up within the fortnight. Dresdner and Banque Nationale de Paris attempted in the late 1980s to form a tri-national investment bank with Kleinwort. BNP took a 5 per cent stake in Kleinwort. Both Dresdner and BNP bailed out when Kleinwort hit problems and plunged to a loss of pounds 68m in 1990.

New management was installed in 1993 under chairman Lord Rockley, and falling interests and rising markets helped restore Kleinwort's health. It made pounds 97m profits last year, with good earnings from both its core corporate finance operation and the fund management arm.

Sources close to Kleinwort see Dresdner as enabling it to become a major world investment bank, combining its capital and access to European companies with Kleinwort's international corporate finance expertise and equities distribution.

One analyst said yesterday: "As an investment bank today, you have to be either heavy artillery or a sniper with telescopic sights."

Philip Gibbs, an analyst at BZW, said: "Kleinwort have to be taking it incredibly seriously to make an announcement, bearing in mind the uncertainty it guarantees. The price is perhaps a little on the low side, although not dramatically so. It's certainly better than what SG Warburg got. Perhaps they can get a better offer from Dresdner, of about 8.50p per share."

Mr Gibbs said the series of acquisitions by European banks would make life more difficult for the American investment banks, since there would be fewer British merchant banks to buy. Some analysts thought that European banks such as SBC, ING and Dresdner were keen to buy British now before the expected abolition of the Glass-Steagall Act in the US, which bars American commercial banks from owning securities houses.

The Act is set to be repealed early next year and analysts expect bids for UK merchant banks and securities houses such as Schroders and Hambros from US institutions.

The departure on Monday of Colin Maltby, chief executive of Kleinwort Benson Investment Management, was linked by some analysts yesterday to dissatisfaction with Dresdner's terms. This was denied by Kleinwort sources.

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