It is set to be the biggest merger the German housing market has ever seen. The escape to the front lines of two corporations that are making good gains from the housing shortage in the cities – but that is precisely why they also have opponents. Until Wednesday evening, the shareholders of the real estate company Deutsche Wohnen could decide whether or not to sell their shares in the largest German owner Vonovia. Of course, many investors only decide shortly before the end of whether or not to accept such offers. It takes time for custodians around the world to report on the shareholders’ decision. But very few expected the result.
In all likelihood, not enough Deutsche Wohnen shareholders tendered their shares, Vonovia said on Friday afternoon. A good 47 percent had recently been collected; at least half of the two companies cited as a requirement.
So over and over again?
No, Rolf Buch is too convinced of his plan for that. The 56-year-old has been at the head of Vonovia since 2013. At that time the group was still called Deutsche Annington and had a bad reputation: rising rents, poor condition. Then, the large influx of people into the cities worked in Buch’s favor, and the persistently low interest rates also benefited him. Buch has invested a lot of money in modernizations, insulation and new balconies. And he bought: Gagfah in Germany, Buwog in Austria, Victoria Park in Sweden. The merger with Deutsche Wohnen should be the crowning achievement: Buch forms the largest real estate group in Europe with more than 560,000 apartments.
For weeks, it seemed like it would work. The Deutsche Wohnen share price stood as if it were cemented at around 52 euros – exactly the price offered by Vonovia. Then on Friday the setback: the price temporarily fell three percent, but recovered. Apparently, investors are hoping Buch’s vision could come true on the next attempt. Even the manager himself is not giving up yet. “A merger of the two companies makes both economic and socio-political sense,” Buch said on Friday.
Hedge funds apparently speculated on a higher bid at a later date
Importantly, there were two pitfalls in the financial market that kept Vonovia from getting out of it. On the one hand, some hedge funds have recently bought “substantial parts” of the shares of Deutsche Wohnen, underlines Vonovia himself. Funds generally speculate that a takeover will be successful, but that they could get more money for their shares in a subsequent compensation offer. So they didn’t sell their shares at the start. At Vonovia, you can’t quite figure this out: the company hasn’t sent any signals that they’ll make any improvements, at any time.
On the other hand, more and more people are investing money in ETFs; These funds replicate an index like the Dax, instead of actively participating repeatedly in different companies. Passive investors only sell stocks when a company like Deutsche Wohnen leaves an index like Dax after a takeover bid, for example. It was and is not so far away.
The result is an impression that Vonovia and Deutsche Wohnen really want to avoid: that the international financial world is speculating with very average tenant housing in Berlin, Dresden, in the Ruhr area.
Many houses owned by Vonovia and Deutsche Wohnen were once built as non-profit or municipal housing, but were privatized. At a time when living in a shrinking and aging society was not considered sexy. At that time, many experts underestimated the attractiveness of big cities with their jobs and universities, infrastructure and culture. Vonovia boss Rolf Buch has called the phenomenon “swarm towns” for years.
Open detailed view
Press conference with Berlin Mayor Michael Müller (left to right), Vonovia boss Rolf Buch, Deutsche Wohnen boss Michael Zahn and Finance Senator Matthias Kollatz: The big landowners want to welcome the country.
(Photo: Christoph Soeder / dpa)
But companies like Vonovia have come under political pressure. The city of Berlin, in which Deutsche Wohnen is strongly represented, recently wanted to curb the rise in housing costs with a ceiling on rents. The Federal Constitutional Court rejected the state law. The debate continues anyway: an initiative called “Expropriate Deutsche Wohnen & Co.” has collected enough signatures that Berliners can soon vote on whether the state should socialize all of the city’s large private landlords. Vonovia and Deutsche Wohnen have limited rent increases in the event of a merger in order to counter criticism.
How’s it going from here? The book doesn’t give up. The group also considers the offer price of 52 euros per share as “still appropriate”. Vonovia now wants to keep everything open: another offer or the purchase of additional shares in Deutsche Wohnen. Vonovia already owns around 18% of the shares, but the group could also sell them. Vonovia also wishes to continue discussions with the Land of Berlin. “Our tenants can count on the announced limit of rent increases until 2026”, explains Buch.
Vonovia tried to take over Deutsche Wohnen five years ago. At that time, the management board and the supervisory board of the Berlin group had rejected the offer. This time it was different: the two organizations recommended that shareholders accept the offer. The narrow failure is all the more surprising.