June 13, 2021

Vonovia and Deutscher Wohnen join forces to form the largest real estate agency in Europe


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It is the response of the German real estate sector to the increasing legislative pressures on rental prices. Vonovia and Deutsche Wohnen agree to merge to create the largest group of residential properties in Europe with a combined market capitalization of around € 45 billion. The joint real estate portfolio is valued at almost 90,000 million euros.

Vonovia has agreed to purchase Deutsche Wohnen for 19,000 million euros, in an operation that is already shaping up to be the largest acquisition in the history of the European real estate sector. Vonovia will offer € 53.03 in cash for each Deutsche Wohnen share, including a dividend. The offer represents a premium of around 18% over the last closing of Deutsche Wohnen shares, last Friday. Is about largest purchase in Europe so far in 2021, as calculated by Bloomberg, and involves the merger of the two largest landlords in Europe, which add around half a million flats for rent. The transaction should be ready by the end of August, if Vonovia collects at least 50% of Deutsche Wohnen shares, and the cartel authorities approve it, although both groups hope that the controller’s approval will go smoothly.

Deutsche Wohnen boss Michael Zahn, who has been resisting for more than five years, has now supported the merger offer. “Now is the right time to combine the proven performance and strengths of both companies,” he said, alluding to the tense moment in the real estate sector in Berlin, where the company has its largest housing portfolio. Despite a 13% price drop since the beginning of the year, Vonovia is worth nearly twice as much as Deutsche Wohnen, which was able to increase by 3% since the German Constitutional Court lowered the cap on rental prices in the German capital. The future company will be called Vonovia SE, its headquarters will remain in Bochum, but it will be managed from Bochum and Berlin. In addition, the parties agreed that there will be no layoffs in connection with the transaction, at least until January 1, 2024, although they do foresee cost savings of more than one hundred million euros per year.

Another important point of the agreement is the option that both companies offer to the Land of Berlin to buy “a significant number” of houses. Vonovia foresees a rights issue of up to 8,000 million euros. Already in 2.019, Deutsche Wohnen agreed to sell to the Berlin Senate a package of 6,000 homes with which the Berlin administration intends to alleviate the lack of social housing. More deals like this can ease the political tension around Berlin’s housing problem, so that both public officials and shareholders benefit.

A real estate giant

Deutsche Wohnen manages 160,000 homes and business premises in Berlin. In 2020 invoiced 2,700 million euros, 1,200 million in residential rentals. According to internal sources, the merger of the two mega-owners will bring cost reductions and allow political concessions to appease the threat of expropriations. On the stock market, the company continues to trade below the net asset value of 52.50 euros per share.

Vonovia has been attempting this merger since February 2016, but Deutsche Wohnen had viewed the takeover attempts as hostile and not in the interests of its own shareholders. The rivalry between Vonovia boss Rolf Buch and Michael Zahn, who had reached personal ground, has been resolved to facilitate the successful transaction ahead of the September general election in Germany, which could lead to political and regulatory risks.

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