LONDON (Reuters) - ING Group may need to break up its world-leading real estate investment management unit to conclude a timely sale, as its bankers begin flushing out prospective buyers, sources close to the deal said.
Morgan Stanley has received a slew of expressions of interest to take over ING Real Estate Investment Management, just weeks after the Dutch bancassurer mandated the bank to evaluate a sale as part of a restructuring in the wake of its 10 billion euro ($12.60 billion) state bailout, the sources told Reuters.
“Morgan Stanley asked for a letter a week last Wednesday on the basis that you were bidding for the whole and that you could demonstrably show you could fund the bid. About 10 letters came in,” one source familiar with the process told Reuters.
Some of the world’s biggest fund managers and institutional investors have logged an interest to buy the ING unit, the largest real estate investment manager in the world with around 66 billion euros of assets under management, sources confirmed.
AXA Real Estate, part of Europe’s No.2 insurer AXA and currently the second-biggest real estate investment manager, had told a Reuters Summit last month it was mulling a possible bid.
Other interested parties include Allianz, asset managers Pramerica and Henderson Global Investors, Ameriprise Financial’s Threadneedle, Blackrock Investment Management and China Investment Corp, advised by ex-Morgan Stanley property head John Carrafiell, sources said.
The parties declined to comment. Carrafiell, representing the Chinese wealth fund, did not respond to requests for comment. Morgan Stanley declined to comment. ING was not immediately available for comment.
The first source familiar with the process suggested Morgan Stanley is sounding out appetite at a price of around 1 billion euros, comprising around 200 million euros for the fund management platform and the rest for an estimated 2.3 billion euros of equity stakes in their managed property funds.
“It doesn’t sound like very much money for a business that’s this big,” said Russell Platt, founder and CEO of privately owned property funds manager Forum Partners.
He said other similar deals tended to be priced at 1 to 4 percent of assets under management, translating to about 660 mln euros to 2.64 billion euros for ING’s platform.
Platt said Forum, which has $2.5 billion in assets under management, had a look at the deal but would only be interested if the ING unit was sold piecemeal.
The first source said Morgan Stanley has negotiated two fee structures in case it fails to find a buyer for the entire unit and is forced to offload the business piece by piece.
“The strong desire from the Dutch is to sell this in one go but the betting in the market is there’s no way they will hold this together,” the source said.
Morgan Stanley’s contingency planning chimes with market chatter that prospective bidders are mainly interested in North American and Australian units and less enthusiastic about the European and Asian arms.
Even if ING could raise more money selling ING REIM in parts, “how you do that and maintain the integrity of the business is tricky,” Platt said, noting challenges faced by Citigroup in its proposed sale of Citi Property Investors.
Either way, a quick sale of ING REIM seems unlikely, sources said, potentially frustrating the Dutch bancassurer’s plan to repay a final 5 billion euros of state aid as soon as possible.
A second source close to the deal said a sale could take up to a year to close.
“These businesses are really difficult to acquire. Someone really has to want to buy it and have the wherewithal and capability to handle the transition,” the second source said.
“These businesses have to be priced attractively for buyers in this environment and they are quite cumbersome and complicated and difficult to make work. The math has to be pretty compelling,” the second source said.
(Additional reporting by Ben Berkowitz in Amsterdam; editing by Jon Loades-Carter)
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