German regulators are bending over backwards to accommodate the country’s dealmakers and uppity hedge funds. The country’s financial watchdog on Thursday agreed to waive the usual one-year cooling-off period and let landlord Vonovia make a second offer for peer Deutsche Wohnen, after its first 18 billion euro bid failed to win enough support. Yet Chief Executive Rolf Buch may still find his quarry elusive.
In the property trade, Vonovia would be labelled a motivated buyer. Buch, who runs the country’s largest listed landlord, has now tried twice to buy Berlin-based rival Deutsche Wohnen, most recently winning his target’s approval for a 52 euro per share offer in July. Yet less than 48% of Deutsche Wohnen investors tendered their shares, below Buch’s 50% minimum acceptance threshold.
Buch faced several challenges. Passive index-tracking funds typically can’t tender shares until a deal is agreed. And he struggled to win over hedge funds, who try to profit by buying into merger targets and then demanding a ransom, thanks to laws that guarantee generous dividends to holdouts who dispute takeovers in court. In theory, the failed deal should have ended the matter, but the rebel shareholders correctly guessed that Germany’s Federal Financial Supervisory Authority would allow Buch to have a second go.
It may still not be enough. Vonovia has said that its second offer is likely to be just 53 euros a share, a less-than-2% bump on the original. Buch may get enough shares to hit his 50% threshold, but he needs to win 75% support to take full control of Deutsche Wohnen’s cash flows through a so-called domination agreement. The skimpy price doesn’t help: a 53 euro per share offer is less than a half-a-percent premium to Deutsche Wohnen’s net asset value to the year ending March, meaning investors have little to lose by holding out.
This could create a problem for Vonovia. If Buch only secures around 50% of the stock, he may not be able to merge his company with Deutsche Wohnen, and so won’t get all the 105 million euros of annual synergies he wants from the deal. He would still have to deal with minority shareholders, and may even draw fire from tenants and politicians, who worry that landlords are becoming too big and jacking up rents. Germany’s largest property deal is heading for a messy stalemate.