Germany iterates firm stance on capital-gains taxes in cash-and-stock acquisitions, potentially affecting Deutsche Wohnen shareholders’ premium from Vonovia’s offer
Germany’s government iterated its tough stance on capital-gains taxes in cash-and-stock takeover offers, a Deutsche Boerse unit said on its website on Wednesday, The Wall Street Journal reported.
The move is set to make deal-making in Europe’s largest economy more difficult, including the merger of the country’s two largest residential-real-estate companies, Vonovia and Deutsche Wohnen, in a USD 14bn transaction, according to the report.
To make its offer successful, Vonovia needs to get at least 50% plus one Deutsche Wohnen share on a diluted basis, according to the report. Taking the two Deutsche Wohnen convertible bonds into account, the minimum threshold moves up to around 56%, the WSJ reported.
Lawmakers plan to apply a 26% tax on the entire cash component also to foreign investors, Deutsche Boerse’s clearing and settlement unit Clearstream said on its website on Wednesday. That means all shareholders holding less than 1% will be immediately taxed, but may claim back some of it depending on their country of residence, the WSJ reported.
The ruling, in place for years, was largely overlooked and, until now, unclear whether non-German investors would also be taxed. That matters because most of Germany’s large listed companies are mainly held by investors outside the country, the New York-based daily business newspaper reported.
“The finance ministry’s letter provides clarity. I assume that Germany’s federal states will follow the ministry’s proposal and approve it,” said Joachim Dahm of Germany’s association of private banks, according to the WSJ online report.
While the letter means clarity for investors in general, it means uncertainty for the tie-up of Vonovia with Deutsche Wohnen. More than half of Deutsche Wohnen’s shares are in the hands of foreign investors holding less than 1%, according to company estimates.
The Wall Street Journal in October reported about the tax rule, causing investors and analysts to question the attractiveness of Vonovia’s offer for its next-biggest rival, according to the report. Vonovia’s Finance Chief Stefan Kirsten last Monday told analysts that the law would only affect retail shareholders and investors who hold their stake in countries that have a “difficult tax-treaty situation with Germany,” alluding to countries that don’t have a double tax treaty, the WSJ reported in the online story.
Vonovia in October said it plans to offer seven of its own shares and EUR 83.14 (USD 90.37) in cash for each 11 Deutsche Wohnen shares. The proposed mix of roughly 70% shares and 30% cash valued Deutsche Wohnen at EUR 25.86 a share, or EUR 14bn in total, at the offer’s announcement, according to the WSJ.
Some investors and analysts have said that the tax could shave the premium off Vonovia’s offer and make the offer unattractive, according to the report. “We are convinced that investors who are eventually affected will only get a minimal effect,” a spokeswoman for Vonovia said Wednesday.
Wall Street Journal Europe