Deutsche Bank



Dresdner Bank


are on the verge of a merger that would create the world's largest bank.

Deutsche Telekom

(DT) - Get Report

is prowling around




U S West


in search of a partner to make it a global player. And



will spin off its chipmaker subsidiary


, sending Germany into the throes of equity fever.

Supposedly in the offing for years, corporate Germany finally appears poised to undergo the kind of dramatic changes and restructuring that will make the world's third-largest economy a more efficient and investor-friendly place. But then again, this is Germany and as with most big changes here, it comes with a healthy dose of characteristic Teutonic caution.

The chummy way government, business and unions relate isn't likely to fade away overnight. In addition, Germany retains a deep commitment to worker-friendly labor laws and generous social programs, which ensure most Germans a high standard of living -- despite the stubbornly high 10% unemployment rate.

But change is accelerating. A key reform eliminating the 50% capital-gains tax paid by one company when it sells an equity stake in another firm is likely to be passed by the parliament later this year. The move is expected to unleash a torrent of deals and mergers.

With the punitive tax gone, banks and insurers will be able to revamp their locked-up equity holdings, which they have held onto for decades and are estimated to be worth far more than $100 billion. Besides simply making more efficient use of their holdings, financial institutions such as insurer


and Deutsche Bank will also be able to use the proceeds for mergers and acquisitions at home and abroad.

"There is no doubt in my mind that it is going to be hugely important," says Klaus Baader, an economist for

Lehman Brothers

. The tax "has helped maintain a very stagnant corporate structure and has worked against mergers and takeovers and likely caused the economy not to work as efficiently as it otherwise would have."

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While the revamped tax code is likely to speed upheaval in corporate Germany, finance ministry officials confirmed recently that companies won't see the true results of the reform until 2002. That's because although the tax change is expected to take place next year, sales of stakes in other companies will be regarded as a type of dividend payment that would be booked for this year at the current tax levels.

Still, companies such as


, which has a domestic portfolio in excess of $40 billion, stand to see an enormous amount of wheeling and dealing in the coming months and years. For example, the 12% stake Allianz holds in drugmaker


could be swapped for shares in another insurer or the stake might simply be sold to the highest bidder and the cash generated used for whatever strategic needs the company may have.

With Deutsche Bank and Dresdner Bank apparently heading toward the altar, the oft-suggested merger of



and Dresdner via the large stakes Allianz holds of both appears forgotten. But speculation Allianz may take over the merged Deutsche/Dresdner's retail banking operations may present the three companies with a neat way to begin restructuring their equity holdings before the corporate tax cut goes into effect. Allianz holds over 20% of Dresdner and roughly 5% of Deutsche.

At the moment it's impossible to tell how much the tax reform played a part in the $30 billion linkup between Deutsche and Dresdner, but Deutsche Telekom's recent interest in the North American telecoms (including

Qwest and

Global Crossing) and the equity mania surrounding the Infineon IPO prove Germany's corporate landscape is changing on more than just one front.

Deutsche Telekom has been searching for a partner to make it a global telco player since its failed merger fiasco with

Telecom Italia


last spring. Now, despite the growing row between Qwest and

U.S. West

, DT may come closer to

la dolce vita

with a foothold in the key North American market via Global Crossing.

Siemens, maker of semiconductors, industrial products, household electronics and everything in between, began its restructuring amid growing global competition in 1998 and a slumping stock price. Its plan to shed noncore businesses and overhaul the rest has paid off in spades. The company's stock, which has more than tripled in the last 12 months and is resting at all-time highs, has helped drive the benchmark


stock index in Frankfurt almost 30% higher in the past three months.

One of its spinoffs,


(EPC) - Get Report

, is now a Dax heavyweight in its own right and the floatation for Infineon looks to be even more successful. Likely to bring in upwards of $6 billion for the company, interest from everyone from housewives to freelance photographers has caused the offering to be 25 times oversubscribed.

Expected to start trading in Frankfurt and New York on Monday for around $35 a share, the Infineon gray-market price has already tripled. Some observers are seeing the IPO as much as a watershed for Germany's growing equity culture as was Deutsche Telekom's offering three years ago. The expected popularity of the company's shares has even prompted speculation Epcos could replace Dresdner in the Dax if the banking merger takes place.

And at the end of the day, the country's growing number of private investors may have a more dramatic and lasting effect on Germany's corporate landscape than any one merger or tax reform, as the society at large becomes a nation of shareholders less willing to stand for the stodgy corporate practices of the past.