Germany's Deutsche Bank AG confirmed Monday that it will pay $10.1 billion to buy Bankers Trust, the eight largest U.S. bank, forming the world's biggest financial company.
After some eight hours of negotiations on Sunday, Deutsche's chief executive Dr. Rolf-E.Breuer and Bankers Trust's (BT) chairman Frank Newman, confirmed Monday morning that they had agreed to a deal. That deal will result in the loss of 5,500 jobs and annual cost savings of $1 billion by the year 2001.
Most of the job cuts will be carved from offices in New York and London. Some one-quarter of the cuts will be culled from global markets and another quarter will be culled from equities.
Deutsche also cleared up recent speculation about how it will fund the acquisition, saying it will pay $93 per share in cash and fund this with a capital increase of $2.3 billion. The remaining part of the purchase will be funded with cash on hand, as well as profit-sharing certificates and the sale of bonds, convertible bonds or bonds with warrants on the bank's own shares and third-party shares.
Speaking with BT's Newman in a Frankfurt press briefing which was broadcast over the internet, Breuer gave assurances that the increase will not dilute the bank's shares.
Because of the cost-savings and the planned capital increase, Deutsche said the purchase will enhance the merged group's annual earnings by some 10 percent to 15 percent starting in 2001.
The merger still needs the blessing of two-thirds of all Bankers Trust shares and of various worldwide regulatory authorities.
The combined bank will also be a powerhouse in asset management, with combined 1 trillion deutschemarks in managed assets as well as in cash management and global custody. All told, combined securities volume will total nearly 7 trillion marks. Bankers Trust is already among the four largest global custodians, with assets of $2.3 trillion.
BT's Frank Newman, who will join Deutsche's board and will assume joint operative responsibility for group division global corporates and institutions (GCI), said the hook-up with such a powerful European bank was an important part of the bank's wish to expand in Europe.
"We are preparing to join the world's leading financial services company, not only in size, but also in expertise. The client mix and geographic cover provides a compelling case for a merger," he said.
But analysts have warned that combining a major German bank with a major U.S. bank is surely going to trigger a cultural backlash - especially with 5,500 jobs getting axed - and most of the jobs going outside of Germany. Deutsche, sensitized to the possibility that valued staff may feel the urge to flee the merged bank, said it is putting aside $400 million to retain staff.
Indeed, the cultural divide was apparent during the press briefing, as the two bank chiefs sat side by side facing the world's press and cameras. Bankers Trust's Newman called the marriage a merger - but Deutche's Breuer made it clear who was really in charge. "That's an American legal term, not a legal jargon that's used [in Germany]. It's an acquisition, to be precise."
Written By Suzanne Miller, London bureau chief for CBS MarketWatch