TLG Immobilien to take over rival WCM

Listed German property group TLG Immobilien is to take over its rival WCM, it announced earlier this month.

TLG will offer WCM shareholders the option of exchanging 5.74 shares for one TLG share each, which based on the TLG average market price over the last three months is €3.15 per WCM share and €3.36 per share based on the TLG Immobilien closing price prior to the day of the announcement of the offer, a premium of 4.6% to WCM’s closing price prior to the day of the announcement of the offer and a premium of 17.8% to WCM’s current pro-forma EPRA NAV.

‘We have been growing our platform since our IPO (in October 2014),’ Peter Finkbeiner, member of the management board at TLG Immobilien, told REFIRE. ‘We told our investors that there are three key ways in which to grow: by acquiring single assets, by acquiring portfolios and by M&A activity. We acquired WCM because we strongly believe in economies of scale and because it’s important to have a substantial volume of assets in local markets. Together, we will continue to focus on offices and retail, although there is also a hotel component.’

WCM's portfolio is currently worth around €800m. Its major shareholder DIC Asset holds 25.95% of WCM’s share capital, which translates into a share total of 34,239,982 shares that were acquired by the company at the average price of €2.79 over several transactions. DIC has said that it supports the public takeover offer: ‘Together with WCM, we acquired a stake in an attractive real estate portfolio and clearly profited from the growth trajectory of WCM on the real estate and capital markets,’ said Aydin Karaduman, CEO of DIC Asset AG in a statement. ‘The takeover offer now announced results in a financially attractive scenario for the shareholders of DIC. Through the transaction, we will acquire a substantial share in an interesting German public limited company for commercial real estate.’

Other key shareholders such as WCM supervisory board member Karl Ehlerding and WCM chairman Stavros Efremidis have already agreed to take advantage of the share exchange offer, apparently securing the minimum acceptance rate of 50%. The offer documents will be published at the end of June 2017.

The new company will have a portfolio worth €3b, more than 75% of which is located in Berlin, Frankfurt, Dresden, Leipzig and Rostock. TLG also owns seven hotels in Berlin, Dresden, Leipzig and Rostock. The combined 447 properties have a rental income of €204m. The joint headquarters will remain in Berlin. The transaction is intended to yield cost synergies of €5m per year.

Ideally, TLG targets single deals of between €20m and €50m or portfolios in excess of €50m, Finkbeiner said. ‘We like assets in B locations within A cities or even assets in B cities. While we buy some value-add, we focus on core and core plus assets.’

TLG Immobilien has doubled its portfolio since its IPO in October 2014, including its takeover of WCM. ‘We had initially planned to grow the business to €2b by the end of 2017, although we have now exceeded that target,’ Finkbeiner said. ‘We wouldn’t rule out further M&A activity, although our focus is to grow by means of single asset and portfolio acquisitions. It’s about adding value to what we do.’

TLG shares were trading at €18.55 on 19 May, up 72.5% from €10.75 in October 2014. WCM shares were trading at €3.15 on 19 May, up from less than €1.6 three years ago.

Frankfurt-based WCM focuses on the long-term rental of high-quality office and retail stock in Germany’s major office conurbations. Since its operational reboot in 2014, it has also focused on value-creating office management. Its shares are listed in the Prime Standard of Deutsche Börse. They have also been included in the SDAX index since December 2015.

TLG expects to complete its takeover of WCM by mid-October this year, according to Finkbeiner. ‘Given the size of the combined company, we see a good chance to be included in Germany’s midcap index, the MDAX, although probably not until next year,’ he added.