Vonovia-Deutsche Wohnen merger risks stalling

Vonovia-Deutsche Wohnen merger risks stalling
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The new offer is not much more attractive than the old one, and could receive high support, but not enough

On Thursday, the German financial watchdog agreed to waive the usual one-year cooling-off period and allow real estate company Vonovia to submit a second offer for Deutsche Wohnen, after the first, of 18,000 million, did not get enough support. But CEO Rolf Buch could still not hunt his prey.

In the industry, Vonovia would be rated as a motivated buyer. Buch, who runs the country’s largest listed lessor, has twice tried to buy its Berlin rival Deutsche Wohnen, last time getting approval of its target for an offer of € 52 per share. But less than 48% of investors came to the offer, below the minimum threshold of 50%.
Buch faced several challenges. Passive index tracking funds are typically not allowed to attend until there is an agreement. And he couldn’t win over hedge funds, who are trying to profit by buying merger targets and then demanding a ransom, thanks to laws that guarantee generous dividends to investors. holdouts they go to court. In theory, the failed deal should have ended the matter, but the rebels guessed that the supervisor would give a second chance.

It may not be enough. Vonovia has said that her second offer is likely to be only 53 euros. Buch can get enough shares for 50%, but he needs 75% to take full control of cash flows through a so-called dominance deal. The offer carries a premium of less than half a point to the net asset value at the end of March, so investors have little to lose if they hold on.

It could be a problem for Vonovia. If Buch only achieves 50%, it may not be able to merge with Deutsche Wohnen, so it will not get the 105 million annual synergies it aspires to. In addition, it would have to deal with minorities and could even be criticized by tenants and politicians, fearful of the concentration in the rental market. Germany’s largest real estate operation is heading for a difficult stalemate.