DW urges Vonovia shareholders to reject 'largest ever hostile takeover'

Deutsche Wohnen has urged investors in rival German property group Vonovia to vote against a proposed €14 bn takeover which its CEO says it 'destroys value' for both firms.

Michael Zahn, Deutsche Wohnen’s chief executive since 2008, warned in a letter to Vonovia's shareholders that the takeover would push Vonovia’s loan-to-value ratio up to 54%, and claimed that Vonovia would only be able to bring this down to 'a normal level' by 'diluting' shareholders.

'Your management team has launched the largest ever hostile takeover offer in the European real estate sector, offering one of the lowest acquisition premiums ever. I recommend that Vonovia shareholders vote against the hostile takeover. This transaction destroys value for shareholders on both sides,' Zahn wrote in the letter.

He also said that the proposed transaction was based on assumptions which don’t 'hold up to scrutiny'. In particular the €84 mln in synergies that Vonovia plans to reap in the two years after the deal were 'not remotely achievable', he added.

'Is inconceivable that Vonovia, which has a lower operational efficiency and lower profit margins, would be able to squeeze additional efficiencies out of Deutsche Wohnen. The opposite is more likely,' said Zahn.

He claimed Vonovia has a different business model, which is 'completely inconsistent' with the key drivers underpinning Deutsche Wohnen’s premium valuation. 'The impact of absorbing Deutsche Wohnen into Vonovia would be a meaningful dilution in FFO and other key financial metrics for Vonovia shareholders, and the premium at which the market currently values Deutsche Wohnen as a result of these factors would be lost.'

Deutsche Wohnen's CEO is stepping up efforts to ward off the hostile bid ahead of a November 30 vote by Vonovia's sharehoders. Vonovia must win the support of 75% of shareholders for the Deutsche Wohnen bid.

If Vonovia's shareholers approve the proposal, Deutsche Wohnen investors will have to decide early next year whether to accept the offer of seven Vonovia shares and €83.14 in cash for every 11 Deutsche Wohnen shares they hold.

Vonovia's CEO Rolf Buch has already said the offer for Deutsche Wohnen is its 'best and final'. Vonovia is not willing to become a minority shareholder in Deutsche Wohnen should it fail to win more than 50% of the stock.

Best results ever
Deutsche Wohnen has just posted the best figures in its history with €521.7 mln of third-quarter earnings versus €144.9 mln a year earlier. Funds from Operations (FFO I) increased around 38% year-on-year to €228.7 mln in Q3.

The Group's Loan-to-Value ratio stood at 41.4% on the reporting date, down from 51% at year-end 2014.

'Deutsche Wohnen is stronger than ever, operationally and from a financial perspective. With above-average rent potential, our successful disposals segment and profit-enhancing acquisitions, we are perfectly positioned to achieve further growth,' Zahn said in the third-quarter result announcement.

As at 30 September 2015, Deutsche Wohnen's portfolio included more than 149,000 residential and commercial units with a fair value of around €10.7 bn.

The company has also announced the departure of chief financial officer Andreas Segal, effective immediately.

Earnings guidance
German residential landlord Vonovia also posted strong result for Q3 and raised its earnings guidance for the year to €590-600 mln, up from a previous forecast of €560-580 mln.

Vonovia, which changed its name from Deutsche Annington earlier this year, said funds from operations more than doubled to €432 mln in the first nine months versus €205 mln in the same period a year earlier. Growth was underpinned by the integration of Gagfah - which proceeds ahead of schedule - as well as by the recent takeovers of Franconia and Suedewo Group.

Vonovia's portfolio is valued at €23.1 bn at the end of September, compared with €12.8 bn a year earlier.
Acquiring Deutsche Wohnen would increase Vonovia’s apartments to 514,000 from 370,000 and make it Europe’s second-largest property company after Unibail-Rodamco by market value.