In the frame of formal talks between Commerzbank and Deutsche Bank, DWS might potentially be sold. DWS’s share price was up 10% yesterday on rumours that Allianz is interested in the German asset manager. We believe Amundi will also be interested in the company.

Positive on the operational side

This will make total sense in operational terms:
– Amundi has managed perfectly to integrate Pioneer in the last three years, as 90% of total cost synergies will be reached by the end of 2019 and an additional €25m of synergies were announced recently (about 30% of Pioneer’s cost base in total).
– Amundi will close the gap regarding its geographical footprint. It is currently mainly active in France, Italy and Asia (via JV), whereas DWS is active in Germany and the US.
Costs synergies would therefore be limited but revenue attrition would therefore lower as well.

– The integration of DWS would fill Amundi’s gap in terms of ETFs as these currently represent only €40bn of total assets vs €100bn for DWS.

CASA’s position?

Credit Agricole SA (CASA)’s will be key in a potential bid from Amundi on DWS. CASA is Amundi’s main shareholder with a 70% ownership.

Given the impact of a deal on its CET1 ratio, any acquisition will be fully equity-funded. Assuming a 25% premium on last Friday’s share price or €35 per share, it would cost CASA about 150bp of the CET1 ratio to keep its 70% stake in the new combined entity.

Assuming a 60% stake in the new combined entity would cost CASA about 90bp and its CET1 ratio at the end of 2019 would be equal to 11% (taking into account the disposal of BSF as well).

This level is completely manageable for the group.

Room for a premium

A 25% premium on DWS would be equal to about 15.5x P/E (2019 earnings). Considering a conservative 20% cost synergies on DWS’s costs basis, this would add about €235m net profit to DWS, equivalent to a 10x P/E (versus an average sector P/E of 12.5x).

According to our analyst on German banks, Deutsche Bank would look at an offer above the IPO price of €32.5. €35 is completely manageable and value-accretive for Amundi at the same time…

To learn more about AMUNDI and DWS : click here