Banks and Insurers: Targets for Raiders

The enormous share price losses seen in the last 18 months have jeopardised many listed companies in Germany. Their shares can currently be bought up at very low prices.

This has made many banks and insurers particularly interesting targets for raiders. This is the finding of a survey conducted by the Centre for European Economic Research (ZEW) in Mannheim, which included 180 financial analysts and institutional investors.

Raiders are financial investors who buy up companies. Their intention is to re-sell such companies at a profit after a short period. In many cases, massive restructuring measures are necessary to achieve certain return rates, such as job cuts and company divestiture. Raiders particularly target undervalued companies.

According to the financial market experts surveyed by ZEW, raiders currently target twelve per cent of the companies listed in Prime Standard, which is a new market segment of the Frankfurt Stock Exchange. For the market segment listed as General Standard, the estimated value increases to 16 per cent. Nevertheless, not all sectors are affected to the same extent. 34 per cent of the experts regard the financial sector as being particularly hard hit. This is a reflection of the currently difficult return situation in this economic sector. It also indicates, however, that financial market experts consider company assets which are not taken fully into account in current market valuations. The IT and telecommunication sector (22 per cent), as well as the chemical and pharmaceutical sector (16 per cent), are also very attractive for raiders.

According to analysts, there are three criteria which make a company particularly attractive to raiders: high price-to-book ratio, large net cash holdings and low levels of debt. On the contrary, a well-functioning market for stock market launches and a favourable shareholder structure are less important for raiders' decisions.

Contact

Dr. Matthias Meitner, E-mail: meitner@zew.de

Dr. Wolfgang Sofka, E-mail: sofka@zew.de