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Deutsche-Dresdner deal off
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April 5, 2000: 11:04 a.m. ET
Germany's $29B bank merger folds, puts Dresdner in play; Allianz comes off worst
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LONDON (CNNfn) - Dresdner Bank called off its planned  30 billion ($28.7 billion) merger with Deutsche Bank Wednesday, sending a shock wave through Europe's financial industry and prompting speculation that Dresdner, Germany's third-largest bank, may be a takeover target for a U.S. bank.
Dresdner announced that its management board had decided unanimously to end merger talks with its larger rival. The company immediately turned on its erstwhile partner, saying Deutsche did not honor their original agreement.
The surprise announcement drew a positive reaction from analysts, who had earlier expressed skepticism about the future in store for the merged company. Concern had mounted as a deal that the banks described as a merger of equals but which quickly turned into a power struggle between the prospective partners.
"This is definitely good for Deutsche Bank," said Daniel Gresch, a banking analyst at UBS Warburg. "I did not see why they did the deal. The execution risk was enormous [and] the speed of integration would be key. I did not see a convincing 100-day plan."
 This is the second time Deutsche and Dresdner have failed to carry through plans to combine all or part of their businesses. The two last year held talks about a merger of their domestic personal banking units, but couldn't reach agreement.
On the Frankfurt stock exchange Wednesday, the main casualty of the breakdown in merger talks was Allianz, Germany's largest insurer, which effectively brokered the deal through its 23 percent holding in Dresdner, while suspending its long-standing rivalry with Deutsche.
The insurer's shares slumped 10 percent after the Dresdner announcement. Allianz (FALV) had agreed to take a minority stake in the merged retail banking arm of the enlarged bank and to buy Deutsche's consumer asset management unit DWS.
Shares of the banks at the center of the deal rose. Dresdner (FDRB) gained 3.2 percent to 45.5, while Deutsche (FDBK) climbed 2.8 percent to 79.
Dresdner blames DKB dispute
Dresdner cited disagreement over the future of its investment banking arm DKB in an enlarged bank as reason for the collapse of the merger plan. Dresdner said Wednesday that the original merger deal called for the unit to be integrated with Deutsche's investment bank GCO, but that Deutsche then demanded that the combined bank sell all or part of DKB.
CNNfn's Tom Bogdanowicz reports on the collapse of the deal.
Deutsche said in a statement that Dresdner refused to contemplate the sale of DKB and that the hoped-for benefits to shareholders had failed to emerge.
Attempts to thrash out merger details since the combination was announced on Mar. 9 have been characterized by disputes over DKB's future, which have seen several top DKB executives quit the firm, including last week's departure of TJ Lim, Dresdner's head of fixed-income. Its top-rated equity team covering the power sector also departed, prompting fears that the value of DKB was dissolving.
"We were surprised, but I think it's a good thing - the overlap [in their businesses] was too big," said Georg Kanders, a banking analyst at WestLB Panmure. "There was too much trouble with the integration process, and there were rumors that Dresdner Kleinwort Benson (DKB) would have to go."
Deutsche's track record of executing bank deals is poor, said analysts, with last year's purchase of Bankers Trust beset by disputes between management in Frankfurt and New York. Its earlier purchase of London-based investment bank Morgan Grenfell suffered a similar fate before Deutsche removed all management control from London and concentrated power in Frankfurt.
 The failure of the Deutsche merger may not be the end of the story for Dresdner. London banking sources said that U.S. banks Citigroup (C: Research, Estimates) and Lehman Brothers (LEH: Research, Estimates) have been linked to a bid for Dresdner. Both declined to comment Wednesday.
Dresdner was also linked last year with a merger with Munich-based HypoVereinsbank (FHVM), Germany's third-largest. Allianz has a 17.6 percent stake in Hypo, and analysts believe it will have a crucial role in deciding the fate of both banks.
"Someone had better pick up Dresdner soon, because they are like a pig being eaten a knuckle at a time," said a senior U.S. banker, who declined to be named. 
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