* Flowers bought Hypo stake for 22.05 eur/shr in May 2008 * Govt offers 1.39 eur/shr Hypo Real Estate * Govt offer a way to sideline Flowers * Flowers owns 25 pct stake together with other investors
FRANKFURT, April 9 (Reuters) - U.S. investor J. Christopher
Flowers' strategy of betting on distressed banks hit a brick
wall in Germany. Flowers, a former partner at U.S. investment bank Goldman
Sachs, made his fortune by taking on distressed financial firms
in need of a bailout. He would try to make money by restructuring them and selling
them on for a profit, sometimes benefiting from a backstop on
losses in the form of government bailouts of the banks. The strategy has worked for him in past, but Germany's power
grab on Thursday to buy a majority stake in Hypo Real Estate
sidelined the U.S. dealmaker, limiting his options for
recouping the losses on his investment. The German government made a 1.39 euros offer per share in a
first step towards nationalising Hypo Real Estate, a move
Flowers, who has a reputation for being reserved yet polite,
opposes. "Flowers should cut his losses and accept the offer," says
Dirk Becker, a Frankfurt-based analyst with Kepler Capital
Markets. "Without the government bailout he would have lost his
money anyway." Flowers, who has not done a large U.S. deal in some time,
headed a consortium of investors that took a stake of almost 25
percent in the Munich-based commercial real estate lender for
1.1 billion euros ($1.46 billion) in May 2008. Flowers paid 22.50 euros a share, a premium of 25 percent at
the time. By early 2009, the value of the shares had sunk to
0.64 euros. They were trading at 1.37 euros after the
government's voluntary offer on Thursday. PLAYING CHESS After quitting Goldman Sachs in 1998, Flowers launched New
York-based J.C. Flowers LLC, a private equity firm that has been
involved in a string of deals. In 2000, Flowers -- a hobby chess player who is known to be
wary of the media -- bought distressed lender Long-Term Credit
Bank from the Japanese government. After a brief period of restructuring, which included
rebranding the bank to Shinsei Bank, J.C. Flowers and Ripplewood
Holdings more than doubled their money with a $2.34 billion
initial public offering in 2004. Shinsei was forced to raise capital in March after the bank
was hit by subprime losses. For Flowers, a graduate of Harvard University, investing in
Germany has not proved to be a success. In addition to his stake in Hypo Real Estate, Flowers also
controls almost 26 percent in ailing HSH Nordbank, after making
an initial investment of 1.25 billion euros as part of a
consortium in 2006. His two German investments have suffered losses as both
institutions were hard hit by fallout from the credit crunch,
forcing them to write off billions of euros in bad loans as well
as the value of their investment in complex structured-finance
products. Both banks have needed a bailout. Time for Flowers to restructure Hypo Real Estate appears to
have run out with the German government's attempt to seize
control. The Berlin government has propped up Hypo Real Estate
with more than 100 billion euros in loans and guarantees. Berlin says control of Hypo Real Estate is crucial for the
stability of the covered bond market. But Flowers is holding on
to his shares for now. "There is still a clear preference to remain a shareholder
and thus to be treated exactly the same as other shareholders
that had to go under (Germany's bank) rescue shield," a
spokesman for J.C. Flowers said of the takeover offer. The voluntary takeover offer gives the German government an
opportunity to get a majority stake. This will allow it to force
through a capital increase at an extraordinary general meeting
as a way to dilute Flowers' stake. Once the government has more than 90 percent control it can
squeeze out remaining shareholders.
Related news: German gov't to take stake in Hypo Real Estate [ID:nL994632] Q+A - Germany bids for Hypo Real Estate [ID:nL9313296] Key facts on Germany's proposed nationalisation law
[ID:nL9341743] TIMELINE-Hypo Real Estate's path to nationalisation
[ID:nL0495767]
(Editing by Andrew Macdonald)
($1=.7530 Euro)
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