German landlord Vonovia in €18bn bid for rival Deutsche Wohnen

German residential landlord Vonovia is close to announcing an €18bn acquisition of rival Deutsche Wohnen in a deal that would need the support of local politicians in the hot housing market of Berlin.

Four people familiar with the matter told the Financial Times that Vonovia is to make an all-cash bid for Deutsche Wohnen, five years after an earlier attempt faltered.

Vonovia is to offer €52 per Deutsche Wohnen share, valuing the equity at €18bn, a premium to Friday’s closing price of more than 15 per cent. Deutsche Wohnen also has €11bn of net debt.

Deutsche Wohnen shareholders would also receive a dividend of just over €1 per share. The payout would be debt-financed by Vonovia.

Unlike in 2016, when the target vehemently rejected the bigger rival’s approach, the transaction would be backed by both companies. With a market cap of €30bn, Vonovia is almost twice as big as Deutsche Wohnen, whose property portfolio is also heavily clustered in Berlin, one of Germany’s most attractive real estate markets. Both companies are members of the Dax, the German blue-chip index.

The people said the potential deal, which was first reported by Bloomberg, could be announced as early as Monday night. However, they stressed it was still possible that talks could fall apart. German markets were closed on Monday as the country had a public holiday

Vonovia and Deutsche Wohnen declined to comment.

The biggest potential stumbling block is regional politics in Berlin, where a scarcity of supply and sharply rising rents have turned housing into one of the most contentious issues.

Vonovia and Deutsche Wohnen will seek to win the support of the Berlin senate with a bundle of concessions that both companies hammered out in recent weeks, people familiar with the matter told the Financial Times.

The companies are willing to sell a certain number of flats to the senate at no premium to the book value, commit to a rent freeze and to build additional flats in the capital to alleviate the supply shortage.

“Both companies are trying to close ranks with regional politicians,” said one person familiar with the matter.

Berlin tenant groups have regularly accused large real estate companies of performing inadequate maintenance — leading to multiple complaints during this winter’s subfreezing temperatures. Activists and tenant groups are campaigning to “Expropriate Deutsche Wohnen & Co”, and call on the senate to nationalise about 200,000 flats, most belonging to Deutsche Wohnen.

A strict cap on rents, which was imposed by the senate, was shot down by Germany’s constitutional court earlier this year on procedural grounds.

The widespread anger in Berlin towards private developers remains high. Deutsche Wohnen, one of the cities’ largest landlords, is often lambasted by activists for renovating buildings and then raising rents. The company has argued its pricing was always within regulations.

Local policymakers greeted a potential merger with scepticism. “This deal would trigger further concentration of real estate capital,” said Florian Schmidt, a Green councillor in charge of housing in the fast-gentrifying Friedrichshain-Kreuzberg district. “The formerly public apartments are once again becoming the play thing of the financial markets.”

Back in 2016, during one of Germany’s largest hostile takeover battles, Vonovia only won the support of 30 per cent of Deutsche Wohnen’s shareholders for a part-cash, part-share offer that valued the company at €14bn.