Mega-Landlord Deal in Germany Faces Mounting Investor Resistance

(Bloomberg) -- A three-way deal to create one of Germany’s biggest landlords is facing a growing backlash from investors.

Shareholders of conservative Berlin apartment-owner ADO Properties SA are questioning the rationale behind the proposed acquisition of two highly-indebted rivals, claiming the deal would destroy value. “We think this deal should never have happened,” said Michael Muders, a fund manager at Union Investment Privatfonds GmbH, which holds about 5% of ADO and is its largest independent shareholder.

The complex deal announced in December would trigger a series of changes that result in ADO effectively becoming the owner of stakes in two German property companies. One is a takeover of Adler Real Estate AG, a landlord specializing in low-cost housing across Germany, with links to Austrian businessman Cevdet Caner. The other is Consus Real Estate AG, a developer with a much higher risk profile and substantial debt.

The deal “is not in the interest of ADO shareholders, and it should be canceled,” Muders said. “Without consulting the shareholders they have decided to change the risk profile completely.”

On Dec. 10, ADO’s biggest shareholder, an Israeli company that invests in German real estate, was acquired by Adler. In a complex maneuver announced five days later, after new board members were installed, ADO proposed the deal to take over Adler. At the same time, it said it would acquire a 22% stake in Consus and has options to acquire a further 51%.

ADO’s shares have plunged about 18% since the deal to buy Adler was announced in December. Consus, which had a net loan-to-value ratio of 88%, according to its 2019 annual report, has gained almost 21% since the announcement.

Adler has grown exponentially in the last decade after investors including Caner’s private foundation took over its largest shareholder, a company called Mezzanine IX, according to public filings. Two of Caner’s family members hold 63% of Mezzanine, now Adler’s second-largest shareholder, according to a document published on the Luxembourg business register in December and company filings.

Caner Connection

Caner was the founder of a group of property companies called Level One, which became Germany’s biggest real estate bankruptcy in 15 years when it collapsed in 2008, owing about 1.5 billion euros ($1.6 billion) to creditors led by Credit Suisse Group AG.

ADO plans to launch a 500 million euro rights issue after the closing of the Adler deal, according to a December statement.

“How can you justify changing the strategy, increasing the risk and raising capital at such a discount,” Muders said. “ADO management can’t defend it.”

Union joins Timbercreek Investment Management in publicly opposing the deal. The Canadian asset manager has asked German regulators to block it, Bloomberg News reported Wednesday.

ADO says the deal is an opportunity for the company, and that every existing shareholder will be able to subscribe to the rights issue.

“By acquiring a developer like Consus the company will be able to develop its own new apartments for letting, and will address the market’s housing shortage,” Thierry Beaudemoulin, Chief Executive Officer of ADO Properties, said in an emailed statement on Friday. “At the same time, it expects to achieve substantial savings by refinancing the majority of Consus’s debt, which is much more expensive than ADO’s.”

The German Federal Financial Supervisory Authority approved ADO’s offer document on Friday, triggering the start of an acceptance period for Adler shareholders that ends on March 6, according to an emailed statement from ADO. As the acquirer, ADO’s shareholders won’t be consulted.

©2020 Bloomberg L.P.

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