Vonovia mega-bid to take over Deutsche Wohnen comes unstuck

It looks very much like Germany's largest housing group Vonovia's plan to take over its rival Deutsche Wohnen has hit the buffers, and will now probably not go through.

Vonovia announced last Friday July 23rd that not enough Deutsche Wohnen shareholders had accepted the takeover offer. It said that around 47.6% of the shares in Deutsche Wohnen had been tendered by shortly before the end of the additional booking period at 6 p.m. on Friday 23rd July. A quorum of 50% of shareholder votes was required for the €18bn takeover deal to go through.

Vonovia CEO Rolf said in the statement, "A combination of the two companies makes a lot of sense. Unfortunately, an insufficient proportion of the current shareholders of Deutsche Wohnen have turned in their shares."

"We will now carefully examine the possible options, such as a sale of the shares in Deutsche Wohnen currently held by Vonovia, a renewed public offer or the acquisition of further shares." Vonovia already owns 18% of Deutsche Wohnen's stock, making it the largest shareholder in its rival.

It does look like a number of hedge funds had held back on tendering their shares as they were speculating on getting a higher payout later on. And complicating matters, a number of hedge funds and index funds which might have tendered their shares are restricted from doing so until the minimum acceptance had been reached, suggested Vonovia.

This is looking very much like a repeat of Vonovia's last failed attempt to take over Deutsche Wohnen in 2016, with the same two bosses in charge of the respective companies. Then, too, the minimum acceptance quota for the multi-billion-euro offer was not reached. However, in contrast to this new offer, the board of Deutsche Wohnen had decried the offer as hostile and fiercely opposed the plan. Now both companies have been jointly promoting the acceptance of the offer.

The Bochum-based Vonovia has been pushing to create Europe's largest real estate group with around 550,000 apartments. The management board and supervisory board of Berlin-headquartered Deutsche Wohnen had been recommending that their shareholders accept the takeover offer, and that the required investments in affordable housing, climate protection and new construction could be "better shouldered" after a merger, according to Deutsche Wohnen CEO, Michael Zahn.

In June, Germany's cartel authority had already given the green light for the merger of the two companies. In their view, the joint market shares of the companies did not warrant a prohibition under competition law, it said. Even in Berlin, where Deutsche Wohnen and Vonovia together account for about 150,000 of the almost 1.7 million rental apartments in the city, this did not represent any form of monopoly threat, it said.

To sweeten the deal, Vonovia had undertaken to limit annual rent increases in Berlin to a maximum of one per cent per year over the next three years. Both companies also agreed with the Senate on the sale of around 20,000 residential units to the state, in line with Berlin's plans to buy back housing in order to better regulate the rental market.

Buch pointed out that substantial parts of Deutsche Wohnen's shares are currently held by hedge funds and also by index funds, which are only allowed to trade once the minimum acceptance quota has been reached. Vonovia said it continues to believe that a merger with Deutsche Wohnen makes strategic sense and creates added value for the shareholders of both companies.

The Vonovia CEO has been reporting rising profits and dividends for years. Even during the Corona crisis, Vonovia has grown strongly thanks to rising rents, acquisitions and new buildings. In 2020, the operating profit increased by 10.6% year-on-year to €1.35 billion. Turnover and profit are also expected to rise further this year. Vonovia rents around 416,000 apartments, of which around 355,000 are in Germany, with small but growing portfolios in Sweden and Austria.

The failure of the merger will probably provide further impetus to the movement to expropriate Deutsche Wohnen, whose supporters have gathered enough signatures in the meantime to ensure that their proposal is put to a referendum in September, the same day as German national elections to the Bundestag take place, along with state elections to Berlin's Senate.

The potential takeover of Deutsche Wohnen by Vonovia had been welcomed by many Berlin tenants of Deutsche Wohnen, which generally does not get a good press in the capital. Vonovia's approach had been seen as more socially accomodating than Deutsche Wohnen's, particularly in the aftermath of the recent decision by Germany's Constitutional Court to overthrow the Berlin rental cap. Vonovia had said it was offering an amnesty to tenants who were now legally obliged to pay back the underpayment of rent during the uncertain period of the 'Mietendeckel'. Deutsche Wohnen, by contrast, had said it would be pursuing its tenants for the back-rent outstanding.