Mergers

Vonovia to make agreed $22 bln takeover offer for Deutsche Wohnen

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Key Points
  • Deal combines Germany's two largest residential property groups.
  • Groups face investments in heat insulation, fittings for elderly.
  • Deutsche Wohnen shares indicated 11% higher.
A sign stands outside the headquarter offices of Vonovia SE in Bochum, Germany, on Thursday, Feb. 11, 2016. Vonovia failed to get enough shares to acquire Deutsche Wohnen AG after a four-month takeover battle between Germany's largest property companies, ending what would have been the biggest ever deal in the country's real estate industry.
Martin Leissl | Bloomberg | Getty Images

Europe's largest residential property group Vonovia SE said it agreed to take over its closest German rival Deutsche Wohnen for about 18 billion euros ($22 billion) to better shoulder future investments in heat insulation.

Under the agreed deal, Vonovia will pay 52 euros per share and Deutsche Wohnen shareholders will retain the rights to a 1.03 per share dividend, Vonovia said in a statement late on Monday.

This amounts to a premium of about 18% on the closing price on Friday, the last trading day, it added.

Shares in Deutsche Wohnen were indicated to open 11% higher in pre-market trade at 0533 GMT, while Vonovia shares were seen down 1.6%.

The chief executive of Vonovia, with property in German, Austrian and Swedish cities, cited a need to make flats more energy efficient and more suitable for the elderly.

"The combination with Deutsche Wohnen now gives us the opportunity to effectively tackle these challenges," Vonovia CEO said Rolf Buch.

Projected annual cost savings of 105 million euros from end-2024 will come mainly from shared technical services and property portfolio management for a combined number of apartments of over 500,000.

Vonovia said it had bridge financing of 22 billion euros for the deal, to be refinanced by measures including an 8 billion euro rights issue in the second half of 2021, following the closing of the transaction.

"It makes sense strategically," analysts at Jefferies said in a note, but added synergies were low.

Deutsche Wohnen, whose buildings are mainly located in Berlin, said it backed the offer.

To secure support for the tie-up in Germany's capital city, where tenant rights and rising rents have been hot-button issues, the two companies pledged to limit regular rent increases to 1% per year there for the next three years and to inflation adjustment for the following two years, among other concessions.

Despite its substantial lead over other German residential property groups, Vonovia has only a 0.9% share in the fragmented German residential market, according to credit rating agency Scope, which has said that any takeover deals would face few antitrust concerns.

An earlier approach by Vonovia in 2016 failed to win the required acceptance from Deutsche Wohnen shareholders for a hostile 9.9 billion-euro takeover bid.

The proposed takeover offer will be subject to a minimum acceptance rate of 50% of the outstanding shares in Deutsche Wohnen.