GSW backs Deutsche Wohnen takeover offer

Residential landlord GSW Immobilien said it will recommend Deutsche Wohnen's €1.75 bn takeover bid to its shareholders.

GSW's management board said the bid, which was launched in August, is 'fair and adequate' for GSW shareholders and confirmed that it 'supports the exchange offer and recommends its acceptance'.

'We consider the business combination as a convincing opportunity to pool the strengths of the two companies,' GSW said in a statement.

Deutsche Wohnen is offering 51 of its shares for every 20 shares in GSW in a deal which will potentially create the country's second-largest residential group by portfolio value.

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.

The deal would bring Deutsche Wohnen's portfolio to some 150,000 residential 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,' Deutsche Wohnen's CEO Michael Zahn said in August.

Deutsche Wohnen is seeking to win investors over for the offer, which runs until midnight on October 30, by promising to raise dividends. The company said its management board will aim to permanently increase the dividends payable, starting with the dividend payable for the fiscal year 2014 from the current level of 50% of funds from operations (FFO) to 60% of the FFO. The ratio compares with 65% for GSW.

The deal - expected to close by year-end - is conditional upon a minimum 75% acceptance level among GSW's shareholders. 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.