Vonovia poised to pounce if Deutsche Wohnen-LEG merger falls through

Germany’s largest residential landlord Vonovia says it is prepared to buy out rival Deutsche Wohnen if its shareholders reject a merger with LEG Immobilien.

Vonovia CEO Rolf Buch claimed that a combination of Vonovia and Deutsche Wohnen would be a ‘more sustainable and strategically sound alternative’ to a merger of its two biggest competitors.

In a statement, Deutsche Wohnen’s board rejected the advance and said they were pressing ahead with the proposed €4.6 bn merger with LEG. The deal is being put to an extraordinary shareholders' meeting on 28 October.

Vonovia is offering Deutsche Wohnen shareholders seven of its own shares plus €83.14 in cash for every 11 Deutsche Wohnen shares, equivalent to €25.86 per share. It claims this represents a premium of around 9.8% on the unaffected share price of 8 October 2015 and 11% on the average share price over the last three months.

‘If Deutsche Wohnen shareholders reject the Deutsche Wohnen AG-LEG Immobilien AG transaction, we will make an offer for Deutsche Wohnen,’ said Buch. ‘In our opinion, a combination of Vonovia and Deutsche Wohnen is a more sustainable and strategically sound alternative, offering significant benefits for all parties concerned.’

Deutsche Wohnen said the offer equated to a 7.4% premium measured against its closing price on 13 October. ‘This does not reflect in any way the potential in NAV growth and the high quality of Deutsche Wohnen’s real estate portfolio,’ the management board said in a statement.

‘Against this background, Deutsche Wohnen rejects Vonovia’s attempt.’

Deutsche Wohnen is offering 33 shares for every 10 shares in LEG, which it says equates to €79.37 per LEG share. The company also plans to boost its share capital by €550m by issuing 213.13 million ordinary shares at the meeting on 28 October.

The combined group would have a portfolio of 250,000 flats valued at around €17 bn. LEG and Deutsche Wohnen say they have already signed a business combination agreement and the deal has been approved by Germany’s Federal Cartel Office.

Vonovia, formerly Deutsche Annington, is in the process of taking over rival Gagfah to create a combined company with a portfolio of 350,000 housing units worth €21 bn. A further merger with Deutsche Wohnen would put 510,000 homes in the hands of a single landlord.