Vienna-listed real estate company CA Immo gains rather than loses from the failed merger with its largest shareholder, Vienna- and Warsaw-listed property group Immofinanz, according to market experts.
CA Immo, which has just reported higher-than-expected figures in its preliminary full year results, has seen its shares surge by 6% to nearly €26 following an announcement by Immofinanz last week that it would ditch its plans for a merger.
‘A merger, like a marriage, has to be between equals,’ commented Stefan Scharff at SRC Research. ‘In this case, CA Immo has achieved a much higher level of operating progress and success over the past few years and there was not much Immofinanz would have brought to the deal.’
CA Immo is expecting a record profit of €235 mln in 2017, up 28% on the previous year's figures. Its portfolio comprises €4.1 bn of assets in Germany and CEE.
The beautiful bride and the not-so-handsome groom
Immofinanz, CA Immo’s largest shareholder with a 26% stake, said last week that it is considering new, more profitable options with regards to its stake, including the potential profitable sale of its shares, which would net around €40 mln at the current prices.
‘With the sale, the CA Immo shares would gain attractiveness as the free float grows and there might be better consolidation prospects in the midterm,’ added Scharff.
Immofinanz first announced plans to merge with CA Immo in April 2016 to create one of the biggest real estate groups in central and eastern Europe, on condition that Immofinanz sold its Russia portfolio first, which took until late last year.
While Immofinanz had held on to its plans for a merger until last week, experts say the momentum was long gone.
Scharff: ‘CA Immo shares were aggressively priced two years ago when the merger was proposed but they have gained nearly 40% since then. For Immofinanz this means that the upside potential is no longer there.’ Immofinanz shares on the other hand are slightly down (€1.9) compared to two years ago, when they traded at around €2 apiece.
Also in terms of the quality of the portfolio, Immofinanz lags behind with a higher vacancy ratio and more tenants volatility, and it would have been challenging to secure the 75% shareholder backing necessary for the merger to go ahead.
Going it alone
Commenting on the strategy change last week, Immofinanz said that it is linked to 'the expected improvement in corporate indicators during the coming quarters' which the company feels should be incorporated in any potential future negotiations. 'Immofinanz intends to concentrate on further strengthening its operating development and on the benefits of its investment in CA Immo during the coming months in order to create added value for its shareholders,' the company said.
Immofinanz was first urged to terminate merger talks with CA Immo by shareholder Petrus Advisers. In a letter last year to CA Immo's chairman of the supervisory board Torsten Hollstein, the London-based investor called the proposed merger a 'waste of money and time'.
Petrus, which with a 4% holding is a sizable investor in Immofinanz's granular shareholding capital, said it had calculated a potential rise of 40% in Immofinanz shares if it bought CA Immo instead of merging and a similar increase if the company sold its CA Immo stake.
Immofinanz's financial results are expected to benefit from the sale of the Russian portfolio, which has continued to shed value over the past few years and represented a major burden on the company's liquidity.
In the first three quarters of 2017, the company reduced its net loss year-on-year from €409 mln in 2016 to €59 mln (including Russia). It posted a profit of €116 mln in the first nine months of 2017, excluding the Russian activities. The value of its portfolio (excluding Russia) rose by €11.3 mln in the first three quarters of 2017, compared to a devaluation of €103 mln in the previous year.
