After a brief flurry of excitement, in which it looked as if listed German housing heavyweights LEG and TAG Immobilien were considering a merger, the mooted deal would now appear to be definitely off the table – amicably, if insider reports are to be believed.
The deal foundered on the proposed exchange ratio of shares. In a statement, LEG said, "No agreement could be reached particularly with regard to a possible exchange ratio. Against this backdrop, the two companies will not pursue the intended combination further."
Had the period of flirtation led to consummation, the deal would have involved TAG Immobilien shareholders exchanging their shares for LEG shares, enabling the Düsseldorf-based LEG to expand its residential holdings outside its home base of North Rhine-Westphalia, and narrow the gap between itself as the third-largest German residential player, and the two industry giants Vonovia and Deutsche Wohnen.
LEG owns and manages 136,000 generally medium- to lower-priced apartments in its home state, while Hamburg-based TAG Immobilien with 85,000 units is primarily active in eastern and south-eastern Germany, particularly in cities such as Leipzig, Erfurt, Chemnitz and Gera, and in the surroundings of Berlin, but with only a handful of units in the capital itself. Both companies are listed in Germany’s MDAX mid-cap index.
Together, the two groups would have weighed in at 221,000 residential units - still far less than the industry leader Vonovia, whose portfolio includes 400,000 apartments at around 400 locations in Germany. By contrast, Deutsche Wohnen has 161,500 residential units in its portfolio - a figure which the combined LEG and TAG would have surpassed.
In recent years, LEG has primarily focused on the acquisition of additional residential units, with new construction making up only a niche market. In 2019, the Group completed only 38 new residential units, but had plans to develop 250 units each year from 2023.
TAG stresses that it concentrates on regions "which show positive economic growth and development data". Last year, the company entered the Polish residential market, where it bought developer Vantage in November for €85m and plans to have 8,000 to 10,000 residential units in the medium term.
With a market cap of €7.4 billion, LEG Immobilien is worth more than twice as much on the stock market as its smaller rival TAG, which has a value of €3bn. At a combined market cap of €10bn, the new entity would have been a new heavyweight on the market.
Both companies have very similar ownership structures, with US giant Massachusetts Financial Services holding about 10% of the shares of both, while asset manager Blackrock and German manager Flossbach von Storch also have sizeable holdings in both.
The cancelled merger comes at a time of both actual and speculative consolidation in the German housing industry. In April, ADO Properties, previously a pure-play Berlin residential investor but struggling under the Berlin rent cap and a shortage of new apartments, finalized its merger with listed peer Adler Real Estate, which is predominantly active in northern Germany, to create a new entity with more than 76,000 units, about the same size as TAG Immobilien. In the commercial market, listed Aroundtown SA also swallowed up Berlin-based TLG Immobilien in a billion-euro merger.
And, as we reported in last month’s REFIRE, rumours that Vonovia was considering buying up the second largest player, Deutsche Wohnen, after seeing its advances warded off four years ago, were actively circulating in real estate circles before Vonovia CEO Rolf Buch gently discouraged further speculation on the grounds that it would be politically unfeasible. That merger, should it have gone ahead, would have resulted in a new €40bn behemoth. But that too, is off the table for the time being.
