FRANKFURT (Reuters) – Germany’s two largest landowners, Vonovia and Deutsche Wohnen, have agreed to join forces in a € 18 billion ($ 22 billion) deal that they hope will ease related tensions soaring rents ahead of the September general election.
The country’s largest merger this year will create a European real estate giant with 550,000 apartments. It comes as Deutsche Wohnen has become the center of popular anger in Berlin over tenants’ rights and affordable housing.
The transaction – the largest European real estate transaction on record according to Refinitiv data – is Vonovia’s third attempt to swallow Deutsche Wohnen.
While analysts have said the deal is expected to meet few antitrust hurdles in a fragmented market, it is politically controversial.
In Berlin, the home port of Deutsche Wohnen, rents have more than doubled since 2008, prompting the local government to impose a cap on rent increases in 2020. However, the Constitutional Court overturned it on last month.
Left-wing activists responded by collecting 130,000 signatures to force a public vote on the seizure of the apartments of “Deutsche Wohnen & Co”. The group behind the petition has said it will fight the merger.
In an attempt to gain political support for the deal, the two companies pledged to limit regular rent increases to 1% per year in Berlin for the next three years, and then inflation-adjusted increases for both. following years.
‘NO TENANT WILL BE INJURED’
They said the merged company, with a combined market valuation of around 47 billion euros, would work with politicians to provide affordable housing and they offered to sell around 20,000 apartments in Berlin for at least 2 Billions of Euro’s.
Vonovia CEO Rolf Buch also spoke about the need to make apartments more energy efficient and more suitable for the elderly and pledged to build 13,000 new apartments in the German capital.
Michael Zahn, CEO of Deutsche Wohnen, who will become Buch’s deputy, said: “No tenant will be hurt by this transaction.”
As part of the “Project Star”, which, according to two financial sources, was agreed in less than two weeks, Vonovia will pay 52 euros per share and the shareholders of Deutsche Wohnen will retain the rights to a dividend of 1.03 euros per share. .
This represents a premium of around 18% on the Friday closing price.
Deutsche Wohnen shares rose 16.4% on information released in a statement after the market closed on Monday, while Vonovia shares fell 6.8%.
A hostile takeover bid of 9.9 billion euros for Vonovia in 2016 was not accepted by the shareholders of Deutsche Wohnen.
This time around, Deutsche Wohnen’s Zahn said he was “very, very certain” that more than 50% of Deutsche Wohnen shareholders would contribute their shares to Vonovia.
“ THE HOUSING MARKET IS BROKEN ”
Fabio De Masi, a parliamentarian from the left-wing Linke party which is part of Berlin’s city government, urged competition authorities to block it.
“The housing market is broken,” he said in a statement.
Even with its sizable lead over other German residential real estate groups, Vonovia only has a 0.9% share of the German residential market, according to rating agency Scope, which said a takeover would face few antitrust issues.
However, Marcel Fratzscher, director of the Berlin-based German Institute for Economic Research (DIW), said the two groups already had considerable influence over the rents and purchase prices of properties, meaning that authorities competition might have concerns.
Vonovia said it has € 22 billion in interim financing for the transaction, which will be refinanced through measures including a € 8 billion rights issue in the second half of 2021, after the close of the transaction.
“It makes sense strategically,” Jefferies analysts said in a note, but said synergies were low.
Deutsche Wohnen is advised by Deutsche Bank, Goldman Sachs, JP Morgan, UBS, 7Square and Sullivan & Cromwell. Vonovia advisers include Perella Weinberg, Bank of America and Morgan Stanley.
(1 USD = 0.8187 euros)
Reporting by Ludwig Burger, Matthias Inverardi, Alexander Huebner and Pamela Barbaglia; Additional reporting by Christoph Steitz and Emma Thomasson; edited by Kim Coghill, Barbara Lewis and Jason Neely