Deutsche Wohnen's bid is 'natural step' as resi market matures

Deutsche Wohnen's €1.75 bn bid for GSW Immobilien is a natural step forward in the light of the evolution of the German residential property market, says Deutsche Wohnen's CEO Michael Zahn.

'Given the developments in the residential sector, we have to become more attractive to investors. A combination with GSW will get us there,' Zahn said in an analyst call.

'The combined entity will have the relevant size in the highly competitive European landscape,' he added.

German residential landlord Deutsche Wohnen is offering 51 of its shares for every 20 shares in GSW, representing a premium of 15% over the volume-weighted average share price of GSW over the past three months.

The bid, to be funded with the issue of 135 million new shares, would give Deutsche Wohnen shareholders around 57% of the new combine, depending on full acceptance. According to the company's website, five investors including BlackRock and Norges Bank hold a combined stake of 24.6% in GSW, and the same companies also own a total of 20.4% in Deutsche Wohnen.

Zahn said the company has considered the possibility of a merger with GSW 'several times' and also carried out preliminary talks with GSW in the past. 'The timing for this deal is right, we believe that this step will accelerate the consolidation of the whole [residential] sector in Germany,' he noted, adding that the company is 'very open to discussions in order to get to an agreement'. 'We would like to have a consensual deal,' he said.

GSW, which has been without a chief executive officer since July, said it will evaluate the proposal and make a statement shortly. The company lost CEO Bernd Kottmann last month following investor complaints about the way he was hired.

The deal would bring Deutsche Wohnen's portfolio of flats to some 150,000 units, valued at around €8.5 bn. The company would rank second after Deutsche Annington Immobilien, Germany’s largest housing group by portfolio value, with roughly 180,000 apartments.

Given that GSW owns about 60,000 apartments in Berlin, the new combine would be heavily focused on this market. 'By buying GSW, Deutsche Wohnen significantly increases its investment base in Berlin. We expect the Berlin market will remain 'hot' for a very long time,' CEO Zahn said.

He added: 'The transaction will help us become more diversified and will increase our already high attractiveness to investors.'

In a statement, Deutsche Wohnen said it expects roughly €25 mln in annual savings from synergies after the integration has been completed as well as an increase of adjusted earnings per share in the single-digit percentage points range.

‘We see the potential to create synergies as the portfolios of both companies fit well, and we regard the strategy of paying in shares as intelligent. However, it would have been more lucrative for Deutsche Wohnen to have decided upon this earlier,’ commented Kai Klose, an analyst at Berenberg Bank.

The deal is conditional upon receiving a minimum 75% acceptance level among GSW's shareholders and backing from Deutsche Wohnen's shareholders for the capital increase at an extraordinary general meeting on September 30.

If successful, the transaction would be the second-largest M&A deal this year after a consortium headed by Patrizia Immobilien bought listed German housing company GBW for €2.4 bn in April.

Closing of the deal is expected for the first half of 2014.