Vonovia Eyes Deutsche Wohnen to Build $40 Billion Giant

(Bloomberg) -- German residential property heavyweight Vonovia SE is considering making a fresh attempt to acquire rival Deutsche Wohnen SE, in a deal that could create a real estate giant valued at about $40 billion, people with knowledge of the matter said.

Vonovia is working with advisers to explore the feasibility of a transaction involving the country’s largest residential landlords, which would need to be friendly and overcome political scrutiny, according to the people. Any approach would probably come after the coronavirus pandemic has eased, the people said, asking not to be identified because the information is private. Germany is gradually reopening businesses this month and next.

Any new approach by Vonovia would come at a time of uncertainty over housing policies that have weighed on the valuation of Berlin-focused Deutsche Wohnen. The city has frozen rents for five years, one of the most radical reactions to spiraling housing costs. While the law is currently in force, Germany’s top court is considering a case claiming the measures are unconstitutional.

Commenting on the prospect of a deal, Vonovia said a transaction would only be conceivable if “fundamental issues were resolved and there was political support” in Berlin. The company’s current priority is addressing the Covid-19 crisis, the landlord said in a statement Thursday. A spokesperson for Deutsche Wohnen couldn’t immediately be reached for comment.

Deutsche Wohnen has around 161,000 apartments and a market capitalization of about 12.7 billion euros ($13.7 billion). Vonovia, which failed in its previous bid to acquire the company four years ago, is valued at about 24.3 billion euros. It owns around 416,000 homes.

Potential Savings

Deutsche Wohnen climbed as much as 8.5% in Frankfurt trading, while Vonovia was down 1.5%. Vonovia could generate significant cost savings by combining with its smaller competitor, Goldman Sachs analysts said in a note.

The housing crunch in Germany is causing a shakeup in the country’s real estate market. ADO Properties SA completed its takeover of Adler Real Estate AG this month, part of a bid to challenge Vonovia and Deutsche Wohnen by bulking up. In November, Aroundtown SA agreed to buy TLG Immobilien AG for 3.1 billion euros in stock to create Germany’s biggest commercial landlord.

Vonovia dropped its previous pursuit of Deutsche Wohnen in February 2016 after failing to get enough investors to accept its bid. Deutsche Wohnen called that bid hostile and not in the best interests of shareholders.

At the time, Vonovia said it expected pretax synergies of 84 million euros a year. The landlord had offered 83.14 euros and seven of its shares for each 11 Deutsche Wohnen shares late 2015, valuing Deutsche Wohnen at almost 10 billion euros.

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