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Hypo/Depfa M&A deal the largest ever Back  
The acquisition of Depfa Bank plc by Hypo Real Estate Holding AG at a value of €5.7billion, was the largest ever merger in Ireland. The Hypo/Depfa deal is awarded this year’s most innovative deal given the great complexity of the deal. The success of the deal was dependent on integrating the requirements of German law as to shareholder rights and capital increases with the timing requirements of the Irish High Court. For a transaction of its size and complexity, the timetable of the transaction was very short, with substantive work on the acquisition only beginning at the end of June 2007.
The €5.7 billion takeover of Depfa Bank (an Irish bank that had been a German bank with a listing in Frankfurt only) by Hypo Real Estate (one of Europe’s largest commercial real estate financiers) is the largest M&A deal ever in Ireland. The deal resulted in the creation of a leading public finance banking group, combining two global franchises in public sector and commercial real estate finance.

Hypo Real Estate is a German public company with headquarters in Munich, whose securities are listed on the Frankfurt Stock Exchange.
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Most Innovative Deal of the Year: Hypo Real Estate takeover of Depfa Bank. Pictured (l to r) David Byers, partner, McCann FitzGerald; Brian O'Gorman, partner, corporate finance, Arthur Cox Solicitors.

The HRE Group is one of Europe’s largest providers of commercial real estate financing.

Depfa was a public limited company incorporated in Ireland, whose securities were listed on the Frankfurt Stock Exchange. The Depfa Group is a leading provider of financial services to public sector entities worldwide, with a network of subsidiaries and branch offices across Europe, Asia and the Americas.

The combination of the HRE Group and the Depfa Group created a leading public finance banking group with proven competence in public sector, infrastructure and commercial real estate finance, diversified in terms of business activities, geographic operations and sources of funding.

‘Co-ordinating the timetables required by the Irish High Court, BaFin, IFSRA and other third parties in the context of the acquisition, the scheme, the financing and the prospectus was unusually complex,’ says Brian O’Gorman partner at Arthur Cox who advised on the deal. The advisers to HRE and Depfa were responsible for negotiating a procedural framework that would apply to the acquisition. This was because the Irish Takeover Rules did not apply because the transaction was structured as a scheme and the Frankfurt Stock Exchange is not a ‘recognised stock exchange’ for the purposes of the Irish Takeover Panel Act 1997, neither the Irish nor the German regulatory framework for takeovers and similar transactions applied.

‘Turbulence in world financial markets formed the background to the acquisition, the scheme document was posted to Depfa shareholders in August 2007 and the acquisition was completed in October 2007,’ says O’Gorman.

‘A key element of the deal limited Hypo’s termination right for MAC to circumstances where the UK Panel would have allowed invocation of MAC termination right if deal were governed by UK City Code - market turbulence in finance sector in August and September therefore insufficient under the merger agreement to allow termination.’ says McCann Fitzgerald, who advised on
the deal.
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‘As the acquisition represented the merger of two German banks, one of which was incorporated in Ireland, the approval of The Federal Financial Supervisory Authority of Germany (Bundesanstalt f?rFinanzdienstleistungaufsicht or ‘BaFin’) and the Irish Financial Regulator was required.’ says O’Gorman. ‘The acquisition was structured as a scheme of arrangement, which involved convening shareholder meetings of Depfa (one an extraordinary general meeting, one convened by the Irish High Court) and obtaining the approval of the High Court of Ireland for the Scheme.’

Prior to the acquisition, Depfa’s shareholder register consisted of only seven shareholders: six nominees and Clearstream Banking AG. The underlying beneficial shareholders of Depfa held via numerous layers of depositary banks. ‘While this structure is not unusual in Germany, the acquisition was the first time that it had to be addressed in the context of structuring and completing an Irish Scheme. Depfa’s shareholding structure added significant complexity to the structure of the acquisition in a number of ways, including the need to demonstrate to the Irish High Court that the underlying beneficial shareholders were being given enough information and adequate time to form a view of the transaction, factoring the extended deadlines required to allow the depositary banks to distribute shareholder materials to the beneficial holders into the wider transaction timetable, and ensuring that the underlying shareholders received the consideration due under the Scheme within a reasonable period of time.’
says O’Gorman.

The consideration for the acquisition comprised cash (approximately 42 per cent) and HRE Shares. The issue of up to 67,036,087 HRE shares necessitated the preparation and publication of a prospectus, which had to be approved by BaFin in order for the new HRE.

The cash component was financed by the issue of €450 million of mandatory convertible bonds, €300 million of hybrid capital and €1.65 billion of senior unsecured debt by the HRE Group.

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