Deutsche Annington Seeks to Acquire German Rival GagfahNicholas Comfort and Dalia Fahmy
Deutsche Annington Immobilien SE offered to buy competitor Gagfah SA in a 3.9 billion-euro ($4.9-billion) deal that would be Germany’s biggest-ever real estate acquisition. Gagfah shares reached the highest price since June 2007.
Deutsche Annington, based in Bochum, offered five shares and 122.52 euros in cash for 14 Gagfah shares, corresponding to a value of 18 euros apiece, the companies said in separate statements today. The offer, which is 16 percent higher than Gagfah’s previous close, beats Deutsche Wohnen AG’s acquisition of GSW Immobilien AG last year that valued GSW’s equity at 1.7 billion euros.
“The timing is surprising but the strategic rationale is obvious,” said Peter Papadakos, an analyst at Green Street Advisors in London. “We’re at a point in the cycle where M&A is highly likely given that share prices are trading at or above net asset value.”
Residential landlords in Germany, where most people are renters, have gone through a flurry of mergers and acquisitions as they seek to expand their market share amid rising rents and low interest rates. Investors bought 9.7 billion euros of apartment portfolios in the first nine months of the year, according to data compiled by Jones Lang LaSalle Inc.
Gagfah was up 12.5 percent at 17.44 euros in Frankfurt trading as of 1:05 p.m., the biggest increase since March, 2012. Deutsche Annington was down 3.5 percent at 24.99 euros. The FTSE EPRA Index of German property stocks has gained 31 percent this year, compared to an increase of 4.4 percent on the German benchmark DAX Index.
Bank of America Merrill Lynch and Deutsche Bank AG acted as financial advisers for Gagfah on the offer and Freshfields Bruckhaus Deringer LLP provided legal council, according to today’s statement.
The combined company would cement Deutsche Annington’s position as Germany’s largest residential landlord, with about 350,000 units and a combined portfolio valued at about 21 billion euros, the companies said. Deutsche Annington Chief Executive Officer Rolf Buch would lead the firm, with Gagfah’s CEO Thomas Zinnoecker taking on the role of Deputy CEO at the combined entity.
Deutsche Annington will sell new shares to help finance the acquisition. The company plans to make a formal offer to Gagfah shareholders before Christmas and accept offers until Jan. 21.
Gagfah is emerging from an overhaul that helped recurring funds from operations almost double in the first nine months of the year as it sold properties to refinance debt and withdraw from regions that weren’t vital to its business.
“Gagfah has accomplished significant improvements in its operating and financial performance over the past 18 months, which have been reflected in considerable value appreciation for our shareholders,” Chief Executive Officer Thomas Zinnoecker said today.
Gagfah’s board members plan to support Deutsche Annington’s offer, subject to review of final documents, and will tender their stock, the company said. The companies still plan 500 million euros of investment and modernization spending next year, they said.
Deutsche Annington is being advised by JP Morgan Chase & Co., Kempen & Co and Sullivan Cromwell LLP.