Fortress’s Gagfah Gains After Bid Report: Frankfurt Mover

Gagfah SA (GFJ), Germany’s second-largest property company by market value, rose to the highest in more than four years after Manager Magazin reported that the company may receive a takeover offer from larger competitor Deutsche Wohnen AG. (DWNI)

The shares climbed as much as 3.8 percent to 9.68 euros in Frankfurt trading, the highest since September 2008, and were priced at 9:47 euros as of 12:35 a.m. Gagfah, majority owned by New York-based Fortress Investment Group LLC (FIG), more than doubled in the past 12 months, lifting its market value to 1.95 billion euros ($2.62 billion).

Manuela Damianakis, a spokeswoman for Deutsche Wohnen rejected the report. “These are rumors arising due to our strength, but there’s nothing to them,” she said. Dirk Schmitt, a spokesman for Gagfah, declined to comment.

Deutsche Wohnen grew rapidly last year and Chief Executive Officer Michael Zahn said in October he expects to increase the company’s market value to as high as 5 billion euros within four years. Analysts and investors say a merger between Deutsche Wohnen and a competitor like Gagfah would benefit shareholders by reducing costs.

Zahn said a merger among Germany’s listed property companies is possible, Die Welt reported on Sunday.

Right Conditions

“There have been conversations about this, but it’s currently not on the table,” he said, according to Die Welt. “I would not rule out that these ideas are brought up again -- when the conditions are right.”

Deutsche Wohnen rose 1.3 percent to 14.44 euros.

Manager Magazin reported the potential offer on Jan. 25 without saying where it got the information.

Gagfah, GSW Immobilien AG (GIB) or TAG Immobilien AG (TEG) may be targets for Deutsche Wohnen, Close Brothers Seydler Bank AG analyst Manuel Martin said in a Jan. 13 report. Mergers in the German property industry are possible, Commerzbank AG analyst Thomas Rothauesler wrote on Nov. 8. GSW is Germany’s third- largest residential landlord by market value, and TAG Immobilien is the fourth.

“When Deutsche Wohnen runs out of growth opportunities, I could see them doing a takeover, but I don’t think it’s in the cards right now,” said Georg Kanders, an analyst at Bankhaus Lampe KG. Gagfah is not a likely target because Deutsche Wohnen prefers apartments in large cities such as Berlin and Frankfurt, where the population is growing. Gagfah’s assets are more scattered geographically.

Available Cash

Deutsche Wohnen increased the number of homes it owns by more than half in 2012. On Jan. 16 the company raised 195.1 million euros in a share sale, and used about half of the proceeds to buy apartments in Berlin, said Damianakis. Deutsche Wohnen has investor approval to issue an additional 800 million euros of new shares.

“Those amounts wouldn’t be enough to buy a company as big as Gagfah,” said Commerzbank’s Rothaeusler. Gagfah’s net asset value is 2.57 billion euros, according to its third-quarter earnings report.

Gagfah has about 3 billion euros of debt maturing this year. In August, the company said it may sell 38,000 apartments in Dresden in order to pay a 1.1 billion loan maturing in May. At the time, Zahn said Deutsche Wohnen may bid for the properties.

The sale hasn’t taken place and now Luxembourg-based Gagfah prefers to refinance the loan, two people with knowledge of the matter said on Jan. 22.

Fortress is among the private-equity firms facing debt deadlines after buying German real estate with the cheap credit available in the years before the global financial crisis started in 2008. The New York-based company owns about 66 percent of Gagfah, according to data compiled by Bloomberg.

To contact the reporter on this story: Dalia Fahmy in Berlin at dfahmy1@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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