Deutsche Wohnen would not block new bid from rival
New CFO says German-listed landlord is open to ‘adequate offer’ from Vonovia
Deutsche Wohnen would not block a bid from its rival, Vonovia, if the price was “adequate”, according to the new chief financial officer of Germany’s second largest listed landlord.
Deutsche Wohnen last year fended off a hostile bid from its larger rival after a bitter struggle, which one person involved described the “most hostile deal in Germany since the Mannesmann-Vodafone takeover battle”.
The takeover would have capped two years of rapid consolidation in German real estate by creating a residential landlord controlling around half a million properties across the country, but was comfortably rejected by Deutsche Wohnen shareholders.
Philip Grosse, a former Credit Suisse banker who became CFO of Deutsche Wohnen last year, said he was sceptical of the merits of further consolidation. But he said that remaining independent was not an “end in itself” and that the company’s management would not stand in the way of an “adequate offer”, were one to materialise.
“If our shareholders were to be made a sensible offer, which was appropriate . . . and which sufficiently reflected the potential of Deutsche Wohnen, you would have a devil of a job to work against it. At the end of the day . . . we are the representatives of the investors, and have to act on their behalf to manage the company. And that of course includes evaluating a potential bid,” he said in an interview with the Financial Times.
Vonovia said: “A deal with Deutsche Wohnen was a topic in 2015 and 2016. This year building new properties is on the agenda.”
Mr Grosse declined to say what an “adequate offer” would be, but said that Deutsche Wohnen had attempted to give investors an idea of what its potential was in a presentation published alongside its third-quarter results.
On this basis, he said, “a value of considerably above €40 [per share]” could be justified. “Of course that is still a long way off. That means the true value lies somewhere between our current valuation and this long-term potential,” he added.
Deutsche Wohnen’s shares closed at €34.05 on Friday, some way above the €25.86 per share implied by Vonovia’s cash-and-stock bid in October 2015, which valued Deutsche Wohnen’s equity at €9.92bn.
Still, Mr Grosse said that he saw little justification for further big transactions in the German real estate sector. “[In residential real estate] the topic of scale is a topic of concentration. If you have concentrated portfolios, then you can run them efficiently. But scale is not an end in itself,” he said.
“If you look at the companies that have critical mass, then in my opinion it is very hard to argue that there are economies of scale and cost synergies, because they just aren’t there. And I think that is one reason why [Vonovia’s bid] failed, because many investors agreed. In that context, I would put a question mark next to the point of further consolidation.”
For the rest of the year, Mr Grosse said his priority was to focus on “internal growth”. The company will invest in both its existing portfolio of properties, as well as in building new properties on land it already owns.