Vonovia and Deutsche Wohnen agree €18b combine, creating Europe's biggest residential landlord

Germany's largest listed residential landlords Deutsche Wohnen and Vonovia have signed an agreement to merge the two companies, creating Europe's biggest residential property group.

The new combine will take the name of Vonovia and have a market capitalisation of around €45 bn. It will hold more than 500,000 apartments, worth a total property value of almost €90 bn.

To this end, Vononia has announced a voluntary public takeover offer for all outstanding shares in Deutsche Wohnen, comprising an offer price of €52.00 in cash and a cash dividend of €1.03 per Deutsche Wohnen share.

This corresponds to a premium of 17.9% on the closing price of Deutsche Wohnen as of May 21, and 25% on the basis of the weighted average price for the last three months. The offer values Deutsche Wohnen Living at around €18 bn.

The management and supervisory boards of Deutsche Wohnen said they supported the offer and intended to recommend acceptance to the shareholders, recognising 'the strategic benefits of the merger and the added value that can be achieved for all those involved'. Five years ago, the business rejected a hostile takeover bid from Vonovia.

Deutsche Wohnen said in a statement that the combine of the two companies offered the opportunity to address the strategic challenges of the housing market even more consistently.

Commented Michael Zahn, CEO of Deutsche Wohnen: 'The market environment for Vonovia and Deutsche Wohnen has become more and more similar in recent years.

'Now is the right moment to combine the proven performance and strengths of both companies. Together we are creating new perspectives for our employees, our tenants and our owners.'

Vonovia said the merger would generate some €105 mln in cost synergies, with the enlarged firm pledging to freeze potential redundancies until 31 December 2023.

The majority of Deutsche Wohnen's apartments are located in Berlin, while Vonovia's properties are spread across Germany, Sweden and Austria.

Rent controls
Both Deutsche Wohnen and Vonovia have been pulled into political debate over rent controls in Germany in recent times, with a proposed Berlin rental cap that would have impacted both their business models only set aside last month after the German Federal Court found it 'unconstitutional'.

However, in recognition that the issue is here to stay, the merging companies announced that they planned to assume responsibility for a social and sustainable housing policy by signing a 'future and social housing pact' with the State of Berlin.

That means that the new combine will limit its regular rent increases across its Berlin portfolios as a whole to a maximum of 1% per year, and in the two years thereafter, implement rental hikes only in line with inflation.

The new firm will push construction in Berlin in the comping years and offer subsidised housing for families in the capital, as well as offering the state a percentage of apartments for acquisition.

The combine will have its headquarters in Bochum and be operated out of Bochum and Berlin. Vonovia CEO Rolf Buch will head the company.

Michael Zahn, CEO of Deutsche Wohnen, is to be appointed vice chairman of the executive board while Philip Grosse, chief financial officer of Deutsche Wohnen, is to be appointed chief financial officer of Vonovia.

An executive committee is to be formed below the management board, to which Henrik Thomson, chief development officer of Deutsche Wohnen, and Lars Urbansky, chief operating officer of Deutsche Wohnen, will belong.

Sector experts don't expect objections from the German competition authorities.

Deutsche Bank, Goldman Sachs, JP Morgan and UBS acted as financial advisor to Deutsche Wohnen, while Sullivan & Cromwell acted as legal advisor.


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