Mega-landlord deal in Germany faces mounting investor resistance
A THREE-WAY deal to create one of Germany's biggest
landlords is facing a growing backlash from investors.
Shareholders of conservative Berlin apartment-owner ADO
Properties are questioning the rationale behind the proposed acquisition of two
highly indebted rivals, claiming the deal would destroy value.
"We think this deal should never have happened,"
said Michael Muders, a fund manager at Union Investment Privatfonds GmbH, which
holds about 5 per cent of ADO and is its largest independent shareholder.
The complex deal announced in December 2019 would trigger a
series of changes that result in ADO effectively becoming the owner of stakes
in two German property companies.
One is a takeover of Adler Real Estate, a landlord
specialising in low-cost housing across Germany, with links to Austrian
businessman Cevdet Caner. The other is Consus Real Estate, a developer with a
much higher risk profile and substantial debt.
The deal "is not in the interest of ADO shareholders,
and it should be cancelled", Mr Muders said. "Without consulting the
shareholders they have decided to change the risk profile completely."
On Dec 10, ADO's biggest shareholder, an Israeli company
that invests in German real estate, was acquired by Adler. In a complex
manoeuver announced five days later, after new board members were installed,
ADO proposed the deal to take over Adler. At the same time, it said it would
acquire a 22 per cent stake in Consus and has options to acquire a further 51
per cent.
ADO's shares have plunged about 18 per cent since the deal
to buy Adler was announced in December. Consus, which had a net loan-to-value
ratio of 88 per cent, according to its 2019 annual report, has gained almost 21
per cent since the announcement.
Adler has grown exponentially in the last decade after
investors including Mr Caner's private foundation took over its largest
shareholder, a company called Mezzanine IX, according to public filings.
Two of Mr Caner's family members hold 63 per cent of
Mezzanine, now Adler's second-largest shareholder, according to a document
published on the Luxembourg business register in December and company filings.
Mr Caner was the founder of a group of property companies
called Level One, which became Germany's biggest real estate bankruptcy in 15
years when it collapsed in 2008, owing about 1.5 billion euros (S$2.3 billion)
to creditors led by Credit Suisse Group.
ADO plans to launch a 500 million euro rights issue after
the closing of the Adler deal, according to a December statement.
"How can you justify changing the strategy, increasing
the risk and raising capital at such a discount," Mr Muders said.
"ADO management can't defend it."
ADO says the deal is an opportunity for the company, and
that every existing shareholder will be able to subscribe to the rights issue.
"By acquiring a developer like Consus, the company will
be able to develop its own new apartments for letting, and will address the
market's housing shortage," said Thierry Beaudemoulin, the chief executive
officer of ADO Properties.
"At the same time, it expects to achieve substantial
savings by refinancing the majority of Consus's debt, which is much more
expensive than ADO's."
The German Federal Financial Supervisory Authority approved
ADO's offer document last Friday, triggering the start of an acceptance period
for Adler shareholders that ends on March 6. As the acquirer, ADO's
shareholders will not be consulted.
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