Vonovia takes over rival BUWOG in €5.2b deal

Germany's largest residential property company Vonovia is buying Austrian rival BUWOG in a cash deal which values BUWOG at €5.2b. The move will see Vonovia increase its housing stock from 350,000 to 400,000 units, and give it valuable access to new housing development.

The DAX-listed Vonovia will become the market leader in Austria by a wide margin through the takeover, although about half of BUWOG's 50,000 housing units are in Germany, where they will be added to Vonovia's centralised operating platform for handling letting operations and upkeep. This reverses the company's original strategy of selling its small holdings in Austria, inherited as a result of the earlier takeover of listed Austrian residential specialist Conwert in February of this year.

Incredibly, the deal was put together over the weekend, Daniel Riedl, CEO of BUWOG, told REFIRE: ‘Vonovia approached us after the close of business on December 15. ,’ he said. ‘We thought an offer could come but we weren’t sure when it would happen. It was a very intense weekend!’

Vonovia is offering BUWOG shareholders €29.05 in cash, a hefty premium of nearly 18% over the €24 at which the BUWOG stock was trading just before the takeover announcement. Vonovia is financing the deal through additional debt, raising its overall leverage level from 42.4% at end-September to 48%. Vonovia’s CEO Rolf Buch said this was not a worry, and that Vonovia would be lowering the ratio back to under 45% through cost efficiencies and rising rents and valuations. He said the price for BUWOG was in line with those of comparable deals such as last week's mega-acquisition by Unibail-Rodamco of shopping centre operator Westfield, and Vonovia's own previous deals (of which there have been five major acquisitions since 2014).

According to Buch, the enlarged group's overall costs should fall by €30m a year due to economies of scale. The deal will help Vonovia intensify its construction activities, building on BUWOG’s extensive expertise in property development. The company will double its target of newly built apartments to 4,000 annually.

Vonovia’s offer reflects a fair valuation of the business, according to Riedl. ‘Vonovia doesn’t have a development pipeline and we have a big development business – we have land in Berlin, Hamburg and Vienna upon which we can build 10,000 apartments. I think we are a perfect add-on for Vonovia.’

BUWOG has a number of sizeable projects in the pipeline. One of its most ambitious ones to date is ’52 Grad Nord’ in Grünau, in the southeast of Berlin. The project, which comprises 988 apartments, is due to be completed in 2019 at an investment cost of around €300m.

Average real estate prices in cities such as Berlin, Hamburg, Munich and Frankfurt have increased by more than 60% since 2010, according to the Bundesbank, which has resulted in massive surge in interest on the part of investors.

BUWOG is expected to keep its branding in Austria but will likely be incorporated into Vonovia in Germany, Riedl said. Conwert assets are also expected to be bundled into BUWOG in Austria, he added. For 2018, at least, BUWOG will also keep its stock market listing, Riedl said.

Further details of the offer are to be announced in February, when the bid will be officially launched. The acceptance period will run until 12 March 2018.

JP Morgan, Kempen, Victoria Partners and Freshfields advised Vonovia on the deal. BUWOG was advised by Goldman Sachs and Schoenherr.