Reform in German economy

The landmark tax package approved by Germany’s Bundesrat on Friday opens Europe’s largest economy to mergers and acquisitions worth several hundred billion dollars, analysts said.

The long awaited reform will scrap a punishing 50 percent-plus tax on asset disposals that has stifled corporate restructuring among a web of cross-holdings between German companies and banks, often called Deutschland AG. “We expect a wave of mergers and acquisitions as a result,” said Michael Wolgast, a senior economist at Germany’s number one bank, Deutsche Bank. “It will be a process and it will just get bigger and bigger.” Shares in German financial sector powerhouses, such as Europe’s number one insurer Allianz, rose sharply on Friday in anticipation of a large scale shake-up of their huge industrial portfolios. “It’s naturally very positive, especially for those companies with large investments like Allianz,” said Guenther Sentsleben, an equities strategist at Bankgeseschaft Berlin.

The first indication at the end of last year that Chancellor Gerhard Schroeder’s government planned to scrap tax on corporate share disposals sent German stocks skywards on hopes that the web of crossholdings would finally be untangled. Vodafone Airtouch’s successful bid for Mannesmann AG earlier this year after a prolonged battle that amounted to Germany’s first major hostile takeover also seemed to signal a more open approach to mergers and acquisitions in Germany. Reuters