What Vonovia is doing is not really possible. Just two months ago, Germany’s largest real estate group attempted to take over Deutsche Wohnen, Berlin’s largest private landlord. But the merger has just failed. Companies actually have to wait a year before they can try again. This is how the law wants it, so that one business cannot annoy the other with offers all the time.
But Vonovia now wants to ask “quickly” for an exemption from the Federal Financial Supervisory Authority (Bafin). The company announced it late Sunday night. “We are awaiting Bafin’s decision this week,” says CEO Rolf Buch. And the application has a good chance. Because Deutsche Wohnen wants Vonovia to present a new offer – and together they want to form the largest real estate group in Europe. The most important questions and answers.
Why is Vonovia trying again?
On the one hand, the company has now bought almost 30% of the shares of Deutsche Wohnen itself. It is therefore not necessary to go too far to obtain a majority. And the alternative would be painful: if Vonovia wanted to sell 30% of all Deutsche Wohnen shares at once, this would probably only be possible at a steep discount. On the other hand, the housing market is a political area. After the legislative elections, a new government could reform the law on the lease. In Berlin, the population will soon vote on the idea of expropriating the large private landowners. This would particularly affect Deutsche Wohnen, whose real estate is 70 percent in the capital. A large company that should better withstand regional headwinds looks attractive.
Why did the most recent offer fail?
Vonovia only had commitments for just under 48% of Deutsche Wohnen’s shares at the end of July, but wants at least 50%. The company referred to hedge funds that bought a significant portion of the shares. These funds like to speculate that a takeover will be successful, but that they may receive higher severance pay at a later date. Therefore, they only partially sell their shares. Vonovia also pointed out that ETFs now own around 20% of Deutsche Wohnen. These passive funds follow indices like the Dax. Therefore, they only react when a company like Deutsche Wohnen releases an index like Dax. But it was and is not yet that far.
How is the new offering different?
Vonovia is now offering 53 euros instead of 52 euros per share. It seems marginal, but it means the buyout would cost tens of millions of euros more. Separately, the group has announced that it will not enter into a domination and profit-shifting deal with Deutsche Wohnen for at least three years. This reduces the chances for investors to get even more money out of it quickly. “With our renewed offer, we are creating the highest level of transaction security,” said Vonovia boss Buch.
Will the buyout be successful now?
There is a lot to be said for this. For example, the Deutsche Wohnen share price stabilized on Monday just below the 53 euros that Vonovia wants to offer. The Federal Cartel Office had also examined the latest merger attempt. According to this, Vonovia and Deutsche Wohnen together only have a market share of over 20% in Dresden and less than 20% in Berlin. “In other cities as well as in other market segments, the common market shares are systematically lower”, declared the head of the authorities, Andreas Mundt. The merger is therefore not expected to have a significant impact on competition. And even the red-red-green Senate in Berlin has taken on a certain taste for fusion. Vonovia and Deutsche Wohnen want to impose limits on rent increases for existing contracts in the capital for a few years. In addition, companies want to sell up to 20,000 apartments in Berlin to public companies. That would fit the Senate perfectly, as it again wants to move more apartments into public ownership. By the turn of the millennium, the country had done the exact opposite: privatized tens of thousands of properties to reduce debt. Vonovia and Deutsche Wohnen now want to continue negotiating with Berlin. Vonovia boss Buch appears to be “a reliable partner in politics”.
What do tenants’ advocates think of such concessions?
The German Tenants Association (DMB) criticized the commitments sounding good, but “demanding little” from companies. According to tenant protection groups, Vonovia and Deutsche Wohnen are increasing their profits mainly by renovating vacant apartments and re-letting them at a higher price. The DMB fears that tenant households will have to bear the costs of the merger “without anything being improved for them”.
How many apartments are there in total?
Vonovia and Deutsche Wohnen together own a good 500,000 apartments in Germany, as well as around 60,000 units in Sweden and Austria. Many properties were once built as non-profit or municipal housing, but were later privatized. Besides Berlin and Dresden, companies are also said to be relatively well represented in the Ruhr, Rhineland and Rhine-Main regions. You benefit from the fact that many people have moved to cities over the past few years and the new building was barely able to keep up with them at first. This means that growing demand meets scarce supply: Vonovia and Deutsche Wohnen can raise rents in many places.
What are the economic benefits of the merger?
The mixed group would have greater purchasing power, for example it could have its houses managed by its own organization of craftsmen. Vonovia and Deutsche Wohnen estimate that together they would generate around 105 million euros in annual profits more than if the two companies were left alone. They also say that together they could “master the big challenges with more strength.” They are thinking, for example, of building new apartments or converting them into climate-friendly homes.
Does Vonovia have to pay property transfer taxes if the Group buys Deutsche Wohnen?
Probably not. Because Vonovia does not want to buy all the houses of the competitor, but only shares in the group that owns the apartments. In such share transactions, property transfer rights are only due if at least 90% of the shares are transferred to a new owner. Vonovia does not need to buy that many shares to take control of Deutsche Wohnen. And after the last offer, the company was far from reaching that threshold.