Vonovia gets green light for full-on Deutsche Wohnen bid

Shareholders in Vonovia, Germany's largest residential property company, gave their company the green light this week to go ahead with its bid for Germany's number 2 player Deutsche Wohnen AG. Deutsche Wohnen is resisting the takeover, and last week itself signed a deal to buy a €1.2bn property portfolio from fellow-listed Patrizia Immobilien AG in a bid to prevent itself being swallowed by its larger rival.

Vonovia CEO Rolf Buch said Vonovia would unveil a formal offer for its takeover bid over the coming days. The vote of confidence from his shareholders came when they approved a share issue needed to finance the bid, valued at €9.9bn on a fully-diluted basis and €14bn including debt. A 75% quorum was required, and holders of a more-than-sufficient 78.2% of Vonovia's capital voted in favour of the share issue.

Agreement from at least 50% of Deutsche Wohnen's shareholders is required for the offer to be accepted. Deutsche Wohnen CEO Michael Zahn still maintains that the Vonovia offer undervalues his company and that the 50% threshold will not be reached. He described the offer as "unattractive and inadequate" and urged his investors to vote to keep Deutsche Wohnen an independent company.

One of the key attractions to Vonovia of acquiring Deutsche Wohnen is the latter's strong foothold in the Berlin market, where the majority of its apartments are now located, following a series of acquisitions of strong local players over the years.

In January next year, Deutsche Wohnen investors will have to decide whether to accept the offer of seven Vonovia shares and €83.14 in cash for every eleven Deutsche Wohnen shares they hold. Vonovia said earlier this month that this is its final offer. It has also said that it may not go ahead with the deal if Deutsche Wohnen were to buy 'material assets' in the meantime, which the €1.2bn of Patrizia apartments clearly is. Vonovia CEO Buch said his company was happy to continue with its bid as offered, irrespective of the new holdings, which it described as "simply an attempt at a defensive measure".

For the Patrizia deal, Deutsche Wohnen said that half the financing would come from its existing liquidity, with the other half coming from bank loans. It said the deal would close "in the coming months."

Underlying the latest takeover bid, after nearly two years of frenetic deal-making, capital-raising, and mergers and acquisitions in the residential sector, are rising property values, rising rents and ongoing domestic and international investor appetite for exposure to the sector.

Vonovia owns and manages 370,000 residential units across Germany, following its takeover of its erstwhile largest rival Gagfah in January this year. Deutsche Wohnen owns 147,000 apartments, the majority of which are in Berlin. Together a merged entity of the two would generate more than €2bn a year in rent-roll, and would have a market capitalisation of more than €20bn, placing it just behind the Franco-Dutch group Unibail-Rodamco among the largest European property companies.

REFIRE: A number of commentators have suggested that the deal between Deutsche Wohnen and Patrizia for about 13,500 apartments, mainly located in Berlin and Kiel, might nonetheless force Vonovia to go back and revise the premise of its offer, and might even kill off the takeover bid if it ultimately refused to increase its offer terms to Deutsche Wohnen shareholders. As many of these shareholders hold stakes in both firms, their interests may be divided and they may switch loyalties if the numbers really don't add up.