CA Immo-Immofinanz merger seen as increasingly likely outcome of shares battle

A merger between Austrian listed property rivals Immofinanz and CA Immo might be the most realistic option despite several weeks of hostile offer, counter offer and public recriminations, according to those who track the market.

‘I think that a merger between CA Immo and Immofinanz could be on the cards,’ Georg Muzicant, CEO of Colliers International in Austria, told PropertyEU. ‘Russia’s O1 Group already holds a controlling stake in CA Immo and I wouldn’t be surprised if it also wanted a controlling stake in Immofinanz. If 01 was to acquire a controlling stake in Immofinanz and merge it with CA Immo, it would create the largest company of its kind operating in the CEE region,’ he added.

CA Immo and Russia's O1 Group are to officially table their offer for a 15% stake in Immofinanz on Wednesday. Immofinanz' boards has already dismissed the offer and unveiled a counter-bid for a 29% stake in CA Immo, which in turn has been rejected by CA Immo and O1 Group. Read more about the offer and counter-offer here

Merger?
Despite the sharp tone of the exchanges in recent weeks other market watchers agree with Muzicant that a merger may be the final outcome. ‘The recent counter bids are a sign that the companies could be moving closer together,’ Michael Zöchling, managing director at C&W’s Austrian partner, BAR, said. ‘Immofinanz could benefit from being controlled by CA Immo, which has a bigger real estate team.’

While any deal would require shareholder approval, there are a number of synergies between CA Immo and Immofinanz and they have a similar geographical investment remit, although Immofinanz is more active in Russia. More than two-thirds of Immonfinanz’s property assets are located in the CEE region, including Russia, while CA Immo’s investments are largely held in Austria and Germany.

Since UniCredit sold its 16.4% stake and four ‘golden shares’ in CA Immo in October last year to Russian-controlled O1 Group for €295 mln, O1 now effectively controls the management board because the ‘golden shares’ allow it to appoint four out of six supervisory board members. O1 has since increased its stake to 26% through a voluntary partial public offer.

Moreover, O1 is ‘very well connected’ in its home market – precisely the market in which Immofinanz has been having problems in recent months, according to Muzicant. ‘O1 could help Immofinanz with its shopping mall pipeline in Russia, as well as to develop land that it holds there. All of this is much easier with a local partner,’ Zöchling said.

Blog diplomacy
Immofinanz wrote on its blog yesterday that it ‘is available for discussions with the management of CA Immo and the O1 Group’. ‘We have always emphasised that it makes strategic sense when two companies that are active in the same regions and asset classes move closer together over the long-term. These overlaps make it a generally reasonable step’, said Immofinanz executive board member Oliver Schumy on the blog.

A spokeswoman for CA Immo said that ‘nothing can be excluded in the long-term, although synergies can also be realised without a merger’. O1 Group could not be reached for comment.

However, for now, the tussle is set to continue. Responding to Immofinanz's partial takeover offer for CA Immo on Monday, O1 Group said in a statement: ‘Given the uncertainty concerning the ability of Immofinanz to pay a dividend, and in light of the recently announced disappointing results of Immofinanz, as minority shareholders of Immofinanz, we share the view of CA Immo that this offer seems to be a defensive reaction to our proposal to acquire shares in Immofinanz and, as such, is not in the interests of Immofinanz shareholders.'

CA Immo’s management added: ‘Our offer remains unaffected and it will be published next Wednesday with an unchanged offer price of €2.80.'

'Ridiculous and emotional'
Immofinanz dismissed the offer for the minority stake as 'ridiculous'. Immofinanz turned the tables on CA Immo on Monday with a counter offer of €18.50 per share, or about €530 mln for just short of a 29% stake in CA Immo. CA Immo already holds a 3% stake in Immofinanz.

Immofinanz has €6.8 bn of real estate under management in Austria, Germany, CEE and Russia. CA Immo specialises in office properties in Central European capitals and has €3.6 bn in assets in Germany, Austria and Eastern Europe.

Immofinanz also owns a majority stake in German residential company, Buwog, which analysts say it would likely offload if Immofinanz and CA Immo were to merge. ‘In that case, I would expect Immofinanz to either sell the stake in Buwog, because it’s not really part of their core business, or to float it as a
separate entity,’ Muzicant said.

CA Immo’s shares were trading at €18.14 on 24 March, close to their 52-week high of €18.59. Immofinanz shares were trading at €2.74, down from €10.30 in 2006.