Munich  - A US private-equity investor, Christopher Flowers, rejected Thursday a takeover bid for battered Hypo Real Estate, signalling a major legal fight ahead with the German government.

His firm, JC Flowers and Co, said in Munich it would not accept Berlin's bid expiring Monday of 1.39 euros per share for HRE.

Flowers, a former Goldman Sachs executive, invested 1.1 billion euros (1.4 billion dollars) in HRE, only to see it turn worthless in the world financial crash after a main HRE subsidiary, Dublin-based Depfa, found last year it was unable to refinance its covered bonds.

Germany has passed temporary legislation to nationalize HRE if a voluntary sale fails. Berlin owns 9 per cent of HRE and JC Flowers and allies hold 22 per cent. HRE's board recommended shareholders accept the bid.

As of last Monday, only 4 per cent of shares had been offered, and far fewer than 1 per cent were offered by Flowers allies.

The Flowers company, which has said it believes the shares are worth more and that it expects to mount a legal challenge to the bank's nationalization, stated that it would hold on to the stock.

The Flowers statement said the investor had a "long-term orientation" and wanted to stay with the company.

In Berlin, a Finance Ministry spokesman said Flowers' decision "will have no effect on the procedures towards a complete takeover."

The German government has extended guarantees and cash infusions totalling 102 billion euros on HRE to save it from collapse. A newspaper, Bild, said Thursday HRE might need another 20 billion euros.

Flowers has few allies in Germany, where the government and public are eager to finish the episode and wind HRE up after spinning off the viable parts of the business.