Deutsche Wohnen investor says higher offer by Vonovia still ‘not fair’

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One of the largest shareholders in German landlord Deutsche Wohnen has hit out over a sweetened offer from rival Vonovia, saying its €18bn bid continues to undervalue the company.

Vonovia announced late on Sunday that it plans to make a revised bid for Deutsche Wohnen at €53 a share, 2 per cent higher than its initial all-cash offer of €52 per share which was rejected last month.

But Michael Muders, a fund manager at Union Investment, Germany’s third-largest asset manager, told the Financial Times on Monday that the improved offer was still “not fair” because it does not reflect true asset value.

Vonovia’s first approach collapsed late last month after it narrowly missed the required threshold of shareholder support. A hostile bid by Vonovia was rejected in 2016.

The revised offer is again subject to a minimum acceptance rate of 50 per cent of Deutsche Wohnen investors. But Vonovia has in recent days increased its stake to just under 30 per cent, meaning it needs to sway another 20 per cent of shareholders.

Deutsche Wohnen has backed the proposed deal, which would create a group that owns 500,000 flats in Germany as well as property in Sweden and Austria worth almost €90bn. Both companies say that the transaction will generate annual cost savings of €105m.

Muders said that the higher offer still did not fully reflect the fundamental value of Deutsche Wohnen’s property assets, did not include a control premium and that cost savings would not be shared with Deutsche Wohnen shareholders.

Union holds a 2.5 per cent stake in Deutsche Wohnen, making it one of the landlord’s largest shareholders. Last month, it rejected Vonovia’s first bid.

Both Deutsche Wohnen and Vonovia rejected the criticism, pointing to the fact that the sweetened offer implies a premium of 17 per cent on the target’s undisturbed share price.

Deutsche Wohnen added that conversations with shareholders showed that the overarching majority of investors support the takeover.

Muders argues that the book value of Deutsche Wohnen’s property is outdated because it does not reflect a landmark court decision in April that struck down a highly contentious rent cap imposed by Berlin’s local government.

By the end of March this year, Deutsche Wohnen reported that its net asset value stood at €52.50 per share. But Muders insisted that the value of Berlin-based property had increased as a result of the court ruling.

He said he estimated a net asset value of roughly €56 per share. “We are very uncertain if the shareholder’s interests still have the highest priority for Deutsche Wohnen’s management,” he added.

Deutsche Wohnen said that it would publish updated estimates on the net asset value on August 13, alongside its half-year results.

“The offer price of €53 per share is slightly above the expected net tangible assets,” it said, stressing that the previous calculations were already based on the assumption that the rent cap was unconstitutional and would be outlawed. The court decision, therefore, “does not call for a change in the valuation assumptions or Deutsche Wohnen’s outlook”, it added.

Rolf Buch, Vonovia chief executive, told the Financial Times that “the first bid did not fail because of the price”.

Shares in Vonovia were up 1.2 per cent by midday trading on Monday, while those of Deutsche Wohnen were flat at just below €53.

Vonovia is expecting the go-ahead from Germany’s financial watchdog BaFin for a revised bid by the end of this week.