Real Estate

Deutsche Wohnen/Vonovia: German house party strikes sour note for minorities


Deutsche Wohnen AG updates

The problem is not just that German landlord Deutsche Wohnen plans to issue shares to Vonovia, helping the rival group take it over for €18bn. The problem is that this is perfectly acceptable to Germany’s financial regulators.

Deutsche Wohnen shareholders that think the price for the deal is too low disagree strongly. US hedge fund Davidson Kempner, which owns 3 per cent of Deutsche Wohnen, said it is pursuing legal action to stop the manoeuvre. 

Those efforts are unlikely to stop the deal closing. A court battle will take years. The scrap is a stark reminder that minority shareholders can easily fall to the bottom of the pile. 

The deal is now in its second permutation. Initial approval for the sale by Deutsche Wohnen’s shareholders at €52 per share narrowly fell short of the 50 per cent needed. Rent controls in Berlin meant this price was just in line with book value. Vonovia then held 18 per cent of Deutsche Wohnen shares.

Vonovia then raised its price to €53 per share. It also strengthened its position by buying shares in the market and receiving treasury shares from Deutsche Wohnen. It now holds more than 30 per cent.

If Vonovia does not get the 50 per cent it requires at the first stage of the next tender, Deutsche Wohnen plans to issue up to 5.5 per cent of new shares. Along with additional treasury shares, that should put Vonovia in control. Passive funds are then likely to tender in Vonovia’s favour.

Deutsche Wohnen’s shaky justification for the plan is that it is better to be acquired than have a large rival as a non-controlling shareholder. 

That position would be more tenable if residential property prices in Germany were not rising so fast. Deutsche Wohnen’s diluted net asset value per share was €53.60 in June. The discount Vonovia is getting will have widened further by the end of the year. Regulators appear happy to sit on their hands. Minority investors will be the losers.

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