Deutsche Wohnen top-10 shareholder considers campaign against Vonovia deal
* Cohen & Steers may call, write to shareholders
* CB holders’ voice muted by cash settlement option
* DW LTV less attractive if CBs redeemed in cash
A top-10 Deutsche Wohnen (DW) [ETR:DWNI] shareholder may launch his own campaign to discourage Vonovia’s [ETR:VNA] hostile takeover of the company, which he says is destroying more value every day it continues.
Rogier Quirijns of Cohen & Steers, which holds around 2% of DW stock, has told this news service he stands by his previous comments that the deal was not in the interests of either companies’ shareholders, particularly after Vonovia moved to extend the offer period by another two weeks on Monday.
Quirijns said he was close to calling or writing to other investors who he knows have been in support of the combination to discourage them from tendering into the offer, or even to ask them to withdraw their already-tendered shares.
He would also ask Vonovia shareholders to withdraw their support, which has provided the suitor’s management with a mandate to pursue the combination, he said.
The deal would be value destructive and Vonovia’s apparent lack of confidence in reaching its initial minimum acceptance threshold of 57% showed DW shareholders are not in favour, Quirijns said. Vonovia cut the acceptance threshold on 25 January, extending the initial tender offer period until 9 February.
Both Vonovia’s lowering of the threshold and extension of the acceptance period were inconsistent with earlier statements it had made that it would not do either, he said, echoing arguments put forward by DW on Friday 29 January.
Vonovia taking a minority stake in DW would not be in any investor's interests, but that scenario could arise if convertible bondholders do not, or are unable to, tender shares, he said.
The bidder has “full support” from DW’s convertible bondholders, but those bondholders can only tender their converted shares during the additional two-week acceptance period, according to the bidder’s CFO Stefan Kirsten speaking to investors on 25 January.
Reducing the acceptance threshold from 57% to 50% took those bondholders’ tendering commitments into account, the company said.
But if the bondholders do not tender the shares into the deal, Vonovia could potentially be left with less than 50% ownership of DW. Vonovia has ruled out “the alleged possibility of accepting a minority position in Deutsche Wohnen”.
Regardless, DW has moved to negate the support of its bondholders for the takeover offer by only offering cash for their conversion, a source close to the target said. DW had originally committed to redeem the notes in shares, but following Vonovia changing the acceptance threshold, the issuer said on 29 January that it would reserve the right to settle in cash.
Vonovia has always looked to secure 100% approval from DW’s CB holders, but now any commitments from CB holders could be worthless if DW elects to settle in cash, the source close to the target said.
DW’s potential election to pay in cash puts the fate of the tender back into the hands of DW shareholders, the source said.
DW should make the decision on whether to convert the bonds into cash or shares before the end of the acceptance period, the source said. A DW spokesperson said the deadline for a decision depends on which CB the company chooses to convert in cash.
Vonovia’s statement in response claims that the cash pay-out to CB holders would amount to around EUR 1bn and further increase DW’s leverage.
Any change in leverage will only be marginal, the source argued. Current aggregated fair market value for the EUR 250m 0.5% 2020 and EUR 400m 0.875% 2021 CBs is approximately EUR 800m versus a cash redemption cost of slightly below EUR 1bn, he added.
A DW spokesperson put the book value of the CBs at the end of 2015 at about EUR 890m, with cash conversion leading to an additional leverage increase of EUR 100m maximum.
DW’s standalone LTV would go from 41.4 to 41.9% in that case, but Vonovia’s pro forma LTV would increase to 58.7% if the convertibles are cash-settled and the offer is successful, the DW spokesperson said.
Vonovia had anticipated reduced leverage on DW’s balance sheet of close to EUR 800m, reflecting an equity conversion of the notes, meaning the bidder’s hope to secure DW with a lower loan-to-value than at present would be dashed in the event of cash settlement, the source said. Vonovia did not respond to a request for comment.
The final decision on how to settle the notes would depend on the DW’s judgement of whether Vonovia would be likely to get a majority without the help of convertible bondholders, the source said.
DW remained very confident that would not happen, particularly after it received positive response to its most recent shareholder letter sent out on Wednesday 27 January to the company’s 30 largest investors, the source said.
Those shareholders who have shown public support for DW’s wish to remain standalone – including MFS, Cohen & Steers and PGGM – said the reduction in the acceptance threshold had not changed their minds, according to the source quoting feedback to the company.