Deutsche Wohnen Bids for GSW in All-Share Transaction

Deutsche Wohnen AG offered to buy GSW Immobilien AG in an all-share transaction that would create the second-largest owner of German homes.

Deutsche Wohnen offered 51 new shares for every 20 GSW shares, valuing GSW’s equity at about 1.75 billion euros ($2.3 billion), according to a statement today. The combined company would own about 150,000 apartments valued at 8.5 billion euros. In a separate statement, GSW said it will evaluate the bid.

GSW has been without a chief executive officer since July, when Bernd Kottmann quit following investor complaints about the way he was hired. Deutsche Wohnen said as early as 2011, before GSW’s initial public offering, that it was interested in buying the company.

“The rumors in the market never went away,” said Manuel Martin, an analyst at Close Brothers Group Plc in Frankfurt, who speculated in January that a deal may happen. “There’s a lot of overlap in their portfolios.” Martin has a buy rating on GSW.

GSW shares ended Frankfurt trading 6.3 percent higher at 33.45 euros. Deutsche Wohnen fell 4.7 percent to 13.49 euros.

Bid Premium

Deutsche Wohnen’s offer values GSW shares at about 15 percent more than yesterday’s closing price of 31.47 euros, according to the statement. The deal would generate annual cost savings of about 25 million euros a year starting in about two years, Deutsche Wohnen said.

Deutsche Wohnen and GSW are based in Berlin and are focused on the city’s housing market, where price and rent gains have outpaced the rest of the country as more people move to the capital.

“We have already frequently held constructive discussions with GSW,” Deutsche Wohnen CEO Michael Zahn said on a call with reporters. “Given recent developments within the executive bodies, and an incomplete supervisory board at GSW, we have decided for this approach.”

Deutsche Wohnen, the country’s second-largest real estate company by market value, owns about 90,000 properties. GSW has about 60,000 Berlin apartments, more than any other company. About 80 percent of the combined company’s portfolio, by value, would be in Berlin, Zahn said on the call.

‘Attractive Market’

“By buying GSW, Deutsche Wohnen significantly increases its investment base in Berlin,” said Zahn. “We expect that the Berlin market will remain very attractive for a very long time.

All of GSW’s homes are in Berlin, while about half of Deutsche Wohnen’s are in the city, according to its second-quarter report.

If the offer is accepted, GSW shareholders will own 43 percent of the combined company and Deutsche Wohnen will have 57 percent, according to today’s statement.

‘‘The initial reaction by investors has generally been positive,” Zahn said on the call. “Generally speaking, the investors are supportive” of a merger between the two companies, he said.

Capital Increase

The transaction will be funded by a capital increase to create about 128.8 million new shares and is expected to close in the first half of 2014.

Germany’s biggest homeowner is Deutsche Annington Immobilien SE.

The combined company would have a market value of about 4 billion euros, Deutsche Wohnen Chief Financial Officer Lars Wittan said on the call with reporters. That would make it Europe’s seventh-largest property company, according to a Deutsche Wohnen presentation published on its website today. The net asset value be about the same, the company said.

The properties will be financed by loans amounting to about 55 percent of their value.

At least 75 percent of GSW shareholders must accept the offer for the transaction to proceed, according to Deutsche Wohnen’s statement.

Sun Life Financial Inc., BlackRock Inc, Norges Bank and two other companies are among GSW’s biggest shareholders with a combined stake of 24.6 percent, according to the landlord’s website. The same companies own a total of 20.4 percent in Deutsche Wohnen.