Germany’s two biggest listed residential property groups, Vonovia and Deutsche Wohnen, have agreed to merge in an €18 billion ($22 billion) deal that will create a company with more than 500,000 apartments across Germany and a combined real-estate value of around €90 billion.
Under the terms of the deal, Vonovia is offering €53.03 a share in cash for each Deutsche Wohnen share, including a proposed dividend for the 2020 financial year, Vonovia said in a statement late on Monday. The takeover offer represents an 18% premium to Deutsche Wohnen’s closing price of €44.99 on Friday.
The companies said they expected €105 million in cost savings a year from the joint management of their portfolios, with the full realization of all potential savings expected by the end of 2024.
Analysts at Jefferies said the deal will give shareholders “long-term strategic benefits,” but they noted that the synergies were low.
Vonovia Chief Executive Rolf Buch said the housing market is facing major challenges, especially in the German capital Berlin, where affordable and senior-friendly apartments are in short supply and many buildings need to be refurbished to improve energy efficiency, and there is a need to build more affordable new housing.
“The combination with Deutsche Wohnen now gives us the opportunity to effectively tackle these challenges,” said Buch in a statement.
The two companies have pledged: to limit regular rent increases to 1% a year in the city until 2026; the construction of new apartments; and an offer to the state of Berlin to acquire 20,000 residential units from the two companies as part of a proposed “pact” with regional politicians to help Berlin’s “strained” housing market.
The deal comes just days after thousands of people demonstrated in Berlin to protest against high rent prices, after Germany’s highest court overturned a rent cap, leaving tenants across the city suddenly facing price hikes.
The rent cap was introduced in February last year, freezing rents for 90% of the city’s flats at their June 2019 level for five years, in an effort to make housing more affordable in Berlin, where rents have soared in recent years.
“As residential real estate offers substantial operational synergies, we regard the envisaged cost advantages as achievable and think that Vonovia’s development pipeline will be strengthened by Deutsche Wohnen’s development activities,” wrote analysts at Berenberg in a note on Tuesday.
“However, by imposing its own rent restrictions for its combined Berlin portfolio, Vonovia’s future like-for-like rental growth is likely to be below the company’s previous target of 3.0-3.8% for this year on a stand-alone basis,” noted the analysts, adding that they would also question whether the company needs to dispose of a high number of properties in Berlin.
Vonovia has secured bridge financing of €22 billion for the deal, which will be refinanced by measures including a rights issue of up to €8 billion, which is expected to launch in the second half of the year, following completion of the transaction.
According to Vonovia, the takeover is expected to be completed by the end of August. The planned takeover offer is subject to a minimum acceptance threshold of 50% of the shares outstanding of Deutsche Wohnen, and regulatory clearance.