Real Estate

Deutsche Wohnen investor seeks injunction to block capital increase

Deutsche Wohnen AG updates

US hedge fund Davidson Kempner is seeking an injunction to block a capital increase by German residential landlord Deutsche Wohnen, saying its “sole purpose” is to help rival Vonovia overcome shareholder resistance to their proposed €18bn merger.

The proposed deal has received lacklustre support from Deutsche Wohnen shareholders. Last month, Vonovia increased its initial bid of €52 a share made in May by €1, a 17 per cent premium on the undisturbed share price. In mid-September it waived all offer conditions.

The deal would create a real estate giant owning 500,000 flats in Germany, Austria and Sweden worth almost €90bn. The companies say the tie-up would generate annual cost savings of €105m.

Deutsche Wohnen has agreed to sell its treasury stock to Vonovia and is willing to issue new shares representing roughly 5 per cent, which would be acquired by Vonovia to push the deal over the line.

Davidson Kempner, which says it holds a 3.2 per cent stake in Deutsche Wohnen, on Thursday said in a statement that the company’s pledge to issue new shares and sell them to Vonovia was “unprecedented and legally questionable” and “raises serious corporate governance concerns”.

It also pointed to a potential conflict of interest as Deutsche Wohnen chief executive Michael Zahn would become deputy CEO of the enlarged company, while finance director Philip Grosse would become the new chief financial officer.

Deutsche Wohnen dismissed the criticism. In a statement, the company said it was “legally and factually incorrect” to assert that its management was facing a conflict of interest as it was “common practice” that executives of a target company join the enlarged group.

It added that its pledge to sell treasury shares to Vonovia and launch a capital increase was in line with German law. “There is a very legitimate reason for granting these shares to Vonovia while excluding pre-emptive rights, namely the overall interest in implementing the business combination that is in the best interest of Deutsche Wohnen.”

Two of Germany’s largest long-only asset managers, holding 1.5 per cent of Deutsche Wohnen between them, also voiced their unease. “From a governance point of view, we are highly critical of the capital increase,” Ingo Speich, head of sustainability and corporate governance at Deka, told the Financial Times. “Such behaviour must not become a precedent for future M&A transactions in Germany.” 

Michael Muders, a fund manager at Union Investment, said he was “unsure if Deutsche Wohnen’s management is still acting in the interests of shareholders”. Previously, he has said that €56 per share would be an appropriate price.

He pointed to the fact that the deal had been rejected by shareholders several times. “The management does not seem to care about this,” he said, adding that it was “not intuitively clear” why a capital increase was necessary. “The debt level is low, and Deutsche Wohnen does not need cash.” 

The first offer was accepted by 47.62 per cent of Deutsche Wohnen investors In July, narrowly missing the minimum acceptance threshold of 50 per cent. Vonovia says it now controls 48.45 per cent of the target’s stock and has waived all minimum thresholds. Without Deutsche Wohnen’s capital increase, Vonovia may still struggle to become the majority owner.

Davidson Kempner accused Deutsche Wohnen’s management of severely undermining shareholder rights and “their prerogative to decide on takeover offers”.

The hedge fund filed a request for an injunction against the capital increase with Berlin’s regional court 10 days ago, according to people familiar with the matter.

The court confirmed it had received an injunction request, adding that Deutsche Wohnen had until Friday to file its legal opinion. The court is likely to determine next week whether a hearing is required or if the matter can be decided immediately.

Vonovia declined to comment. 


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