Deutsche Wohnen to buy rival LEG Immobilien in €4.6b deal

In the latest round of consolidation in the German listed housing sector, landlord Deutsche Wohnen has offered to buy its smaller rival LEG Immobilien to create one of Europe's largest residential property companies.

Deutsche Wohnen, Germany's second largest housing landlord, has made an all-share offer which values LEG's equity at €4.6 bn.

Deutsche Wohnen is offering 33 of its shares for every 10 shares in LEG, it said, adding that this equated to an offer price of €79.37 per LEG share and a premium of about 13% over the closing price of LEG prior to the announcement.

As part of the deal, Deutsche Wohnen's share capital will be increased by up to €550 mln by issuing 213.13 million ordinary shares at an extraordinary shareholder meeting scheduled for October 28.

Following the merger, former Deutsche Wohnen shareholders will hold 61% in the combined group, while former LEG shareholders will own the remaining stake.

The combined group will have a portfolio worth about €17 bn, comprising 250,000 flats. Germany’s largest listed homeowner Vonovia (formerly Deutsche Annington) will own 350,000 housing units valued at over €21 bn once the integration with Gagfah is complete.

LEG and Deutsche Wohnen said they have already signed a business combination agreement. LEG's boards will support the offer and will recommend shareholders to accept the offer.

'That's an excellent basis from which we can keep growing together and expand our strong position in the European market,' Deutsche Wohnen's CEO Michael Zahn commented.

The companies have 'highly similar business philosophies', noted Thomas Hegel, CEO of LEG. 'The combination is the next logical step as both companies pursue the same business philosophy and complement each other regionally very well. This creates a strong base for a successful joint future.'

He added: 'For our shareholders the value added of the transaction lies in a significant increase in NAV per share.'

As part of the operation, two members of LEG's current management board, Thomas Hegel and Eckhard Schultz, will become members of the management board of Deutsche Wohnen while LEG's CEO, Thomas Hegel, will become Deputy CEO of Deutsche Wohnen.

STRATEGY
The new combine will maintain the conservative debt ratio and grow in the core regions, namely North Rhine-Westphalia, while also seeking to develop new areas.

Its portfolio will include around 157,000 of Core+ units mainly in the Rhineland and Münsterland. The Core portfolio will rise from 16,000 to 58,000 units.

The Dusseldorf premises, currently housing LEG's headquarters, will be expanded as a second mainstay of the combined company – in addition to the main hub in Berlin. In the future, they will serve as the centre for Region West and administer the combined portfolios from Northern Germany to the Rhine-Main-Area.

The merger is expected to have a positive effect on combined FFO (excluding disposals) of around €35 mln before tax per year, mostly thanks to synergies from an efficient property management, economies of scale in purchasing and standardised corporate structures with a reduction in administrative costs.

Deutsche Wohnen also expects that the business combination will increase the privatisation potential by around 1,500 units per annum, with an additional earnings contribution of €20 mln before tax per year. The companies also forecast an additional earnings contribution of around €55 mln before tax for the combined group’s FFO (including disposals).

These synergies are expected to be fully realised, at the latest, four years after the business combination has been executed and they come with non-recurring integration costs of around €30 mln, the companies added.

PREVIOUS BIDS
The offer comes within months of Deutsche Wohnen's attempt to buy Vienna-listed property firm Conwert Immobilien Invest for €1.2 bn. Deutsche Wohnen's €11.50 per share tender offer in April failed to win the backing of Conwert's shareholders.

In late 2013 Deutsche Wohnen took over GSW Immobilien in a €1.75 bn bid.