RZB value = zero? Markets think so

Emerging Europe’s No.2 lender Raiffeisen International and its unlisted parent, cooperative bank RZB, on Feb. 22 preempted a Reuters scoop and disclosed that they were considering to put their businesses together. This would add to Raiffeisen’s business, currently exclusively in the former Communist part of Europe, a franchise serving large Austrian and international companies and institutional investors. Analysts and investors have been concerned because they can’t easily put a value on RZB’s business ex-Raiffeisen, and many fear they may be put at a disadvantage in the merger. The 21 percent drop in Raiffeisen’s shares makes it possible to quantify this concern. Raiffeisen International CEO Herbert Stepic (L) and RZB CEO Walter Rothensteiner address a news conference in Vienna February 26, 2010. Stepic and Rothensteiner reiterated they had not yet made a decision about a possible merger, but said they thought this was the right step to take. REUTERS/Heinz-Peter Bader Raiffeisen International CEO Stepic and RZB CEO Rothensteiner address a news conference in Vienna. REUTERS/Heinz-Peter Bader

The planned deal – which Raiffeisen and RZB say is still only one of several options – would be implemented under a procedure known as statutory merger in German and Austrian share law. Here’s how it works: Auditors – one for each company and a third, appointed by a court – review the two companies business plans for the next 10 years and from that derive a valuation for each of the two companies. Based on that valuation, they calculate an exchange ratio for the swap of both companies’ current shareholdings into the shareholdings in the new, merged company.

Since RZB already owns 70 percent of Raiffeisen, the new company’s equity value will equal that of RZB (as determined by the auditors) plus that of Raiffeisen’s current free float of 30 percent. Or, to put it the other way round: The free float in the new company will be calculated as:

Value of Raiffeisen free float divided by the sum of RZB’s value and the value of Raiffeisen’s free float

Pending final valuations, RZB and Raiffeisen in a confidential memo obtained by Reuters have put a tentative price tag of 6.1 billion euros on RZB, which they said would equal 1.17 times its book value. The memo put Raiffeisen’s own equity value at 6.2 billion euros, based on a share price of 40 euros – the level it traded at before the possible deal was disclosed. This yields a new free float of:

Haider’s heirs disown troubled Hypo bank

When the late Joerg Haider, the hard-right populist governor of the southern Austrian state of Carinthia, sold most of his government’s stake in Hypo Group Alpe Adria in 2007, he said, beaming: “Ladies and Gentlemen, Carinthia is rich.”

BayernLB, which like many other German landesbanken appears to have never met a toxic asset it didn’t like, had just paid 1.65 billion euros for a 50 percent stake in Hypo. Around half of that went into Haider’s government’s coffers.


True to his pork-barrel politics, Haider used the funds to, among other things, subsidise Carinthian teenagers’ driving licence fees, scrap kindergarten fees, and pay out cash to Carinthian families to “offset inflation” in 2008, conveniently timed shortly before an election.