Germany's biggest landlords seek to reassure Berliners over $22 bln merger
FRANKFURT — Germany’s two biggest listed landlords Vonovia and Deutsche Wohnen have agreed to join forces in an 18 billion-euro ($22 billion) deal that they hope will defuse tensions over soaring rents ahead of general elections in September.
The country’s biggest merger this year will create a
European real estate giant with 550,000 apartments. It comes as Deutsche Wohnen
has become the focus of popular anger in Berlin over tenant rights and
affordable housing.
The transaction – the largest European real estate deal on
record according to Refinitiv data – is Vonovia’s third attempt to swallow
Deutsche Wohnen.
While analysts said the deal should encounter few antitrust
hurdles in a fragmented market, it is controversial politically.
In Berlin, Deutsche Wohnen’s home base, rents have more than
doubled since 2008, prompting the local government to impose a cap on rent
rises in 2020. However, the Constitutional Court overturned that last month.
Left-wing campaigners have responded by collecting 130,000
signatures to force a public vote on seizing apartments from “Deutsche Wohnen
& Co.” The group behind the petition said it would fight the merger.
To try to secure political support for the deal, the two
companies pledged to limit regular rent increases to 1% per year in Berlin for
the next three years and then inflation-adjusted increases for the following
two years.
‘NO TENANT WILL BE HURT’
They said the merged company, with a combined market
valuation of about 47 billion euros, would work with politicians on providing
affordable housing and they have offered to sell around 20,000 apartments to
Berlin for at least 2 billion euros.
Vonovia CEO Rolf Buch also cited a need to make apartments
more energy efficient and more suitable for the elderly and promised to build
13,000 new apartments in the German capital.
Deutsche Wohnen CEO Michael Zahn, who will become Buch’s
deputy, said: “No tenant will be hurt by this transaction.”
Under ‘Project Star’, which two financial sources said was
agreed in less than two weeks, Vonovia will pay 52 euros per share and Deutsche
Wohnen shareholders will retain the rights to a 1.03 euro per share dividend.
This represents a premium of about 18% on the closing price
on Friday.
Shares in Deutsche Wohnen rose as much as 16.4% on the news
delivered in a statement after Monday’s market close, while Vonovia shares fell
as much as 6.8%.
A hostile 9.9 billion-euro takeover bid by Vonovia in 2016
failed to win acceptance from Deutsche Wohnen shareholders.
This time, Deutsche Wohnen’s Zahn said he was “very, very
certain” that more than the required 50% of Deutsche Wohnen shareholders would
tender their shares to Vonovia.
‘HOUSING MARKET IS BROKEN’
Fabio De Masi, a parliamentarian from the left-wing Linke
party that is part of Berlin’s city government, urged the competition
authorities to block it.
“The housing market is broken,” he said in a statement.
Even with its substantial lead over other German residential
property groups, Vonovia has only a 0.9% share in Germany’s residential market,
according to credit rating agency Scope, which has said a takeover would face
few antitrust concerns.
However, Marcel Fratzscher, head of the Berlin-based German
Institute for Economic Research (DIW), said both groups already had
considerable influence on rents and property purchase prices, meaning
competition authorities could have concerns.
Vonovia said it had bridge financing of 22 billion euros for
the deal, to be refinanced by measures including an 8 billion euro rights issue
in the second half of 2021, following the transaction’s close.
“It makes sense strategically,” analysts at Jefferies said
in a note, but said the synergies were low.
Deutsche Wohnen is being advised by Deutsche Bank, Goldman
Sachs, J.P. Morgan, UBS, 7Square and Sullivan & Cromwell. Vonovia’s
advisers include Perella Weinberg, Bank of America and Morgan Stanley.
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