value and opportunity

Good times for my “special Situations” investments.

After Draeger came out with an 210 EUR offer last week, Commerzbank today announced that they will make a tender offer (among others) for the HT1 Bond at 71%..

The exchange offer invitation by the Offeror includes the following hybrid capital instruments, subordinated debt securities and other capital instruments:

Instrument	Aggregate Principal	ISIN	Minimum	Theoretical	Order of
	Amount outstand-		Nominal	Purchase	Priority**
	ing		Amount	Price
Commerzbank Capital Funding Trust I	EUR 189,550,000	DE000A0GPYR7	50000	31500	1
Commerzbank Capital Funding Trust II	GBP 115,600,000	XS0248611047	£ 50,000	£ 30,500	1
UT2 Funding p.l.c.	EUR 750,000,000	DE000A0GVS76	1000	825	2
HT1 Funding GmbH	EUR 1,000,000,000	DE000A0KAAA7	1000	710	3
Eurohypo Capital Funding Trust I	EUR 306,425,000	XS0169058012	1000	690	4
Lower-Tier-2-Anleihe (bearer bond)	EUR 502,150,000	DE000CB07899	50000	€ 41,000***	5
Lower-Tier-2-Anleihe (bearer bond)	EUR 272,850,000	DE000CB8AUX7	50000	€ 42,500***	5

The only caveat is the point that the inevstors will not get cash but Commerzbank shares.

The Offeror plans to contribute the securities it acquires as a contribution in kind to Commerzbank in exchange for new shares issued from the authorised capital (“genehmigtes Kapital”) of Commerzbank. There will not be a placement of the new shares with investors, as qualified holders of the selected securities will receive the shares directly in exchange for the securities tendered.

To make things more interesting, the amount of shares (and the implicit exchange price for the shares) will be determined in the following way:

The price of these shares will be determined based on the average of the daily volume weighted average price in XETRA during the period starting on February 24 and ending on March 2, 2012.

Th eoffer is limited to the number of new shares created (511 mn shares at 2 EUR would mean around 1 bn EUR), the securites affected have a total volume of 3.1 billion. If more people tender, the acceptance will be on a proportional basis:

In the event that the total volume of securities for which tenders have been submitted to the Offeror exceeds the authorised capital of 511,342,904 shares, the Offeror will accept the tenders on a pro rata basis as set forth in the Exchange Offer Memorandum dated February 23, 2012.

A technical side remark: Commerzbank has announced that the local GAAP result will be a hefty loss of 3.5 bn EUR, however they will use reserves to prevent any writedown on profit participating securites, including HT1.

Summary: The tender offer will boost the price significantly. I am however not sure if I want to sell at that price.