Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>We have completed roughly half of the 20-day Reference Period for the DAX Equity Indices family for the September 2022 Rebalance.</li>
<li>In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.</li>
<li>Three names could move from SDAX to MDAX while the SDAX index could see another 4 ADDs/DELETEs.</li>
</ul>


We have completed roughly half of the 20-day Reference Period for the DAX Equity Indices family for the September 2022 Rebalance.
In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
Three names could move from SDAX to MDAX while the SDAX index could see another 4 ADDs/DELETEs.


DAX/​​MDAX/​​SDAX Quiddity Leaderboard Sep 2022: Final Expectations

European Event-Driven Analyst

Jesus Rodriguez Aguilar

As of 24 September, the total number of shares tendered, plus the Deutsche Wohnen Shares directly held by the Vonovia, plus the Deutsche Wohnen Shares in respect of which Vonovia was directly and unconditionally entitled to an immediate transfer, and plus the financial instruments relating to the acquisition of Deutsche Wohnen shares directly held by Vonovia amounts to 181,711,364 Deutsche Wohnen shares. This corresponds to approximately 50.49% of the share capital and the voting rights of Deutsche Wohnen.
Vonovia began this round in mid-June, when it launched its first friendly bid to win its competitor. At the time, the cash offer made was €52/share, in addition to the right to cash in the expected dividend of €1.03/share. However, this attempt did not prosper as it just reached a 47.6% support, below the 50% minimum acceptance threshold.
In its second offer this summer, Vonovia raised to €53/share to woo Deutsche Wohnen shareholders. Thus, Vonovia valued its rival at €19.1 bn vs. €18 bn at the beginning of summer.
The resulting merger of the two German real estate companies will result in a conglomerate owning over 500,000 homes on the European market, some 350,000 from Vonovia divided between Germany, Austria and Sweden; and 160,000 from Deutsche Wohnen, which concentrates a good part of its properties in Berlin. The joint valuation of their portfolios reaches €89,000 mn.
Berlin votes in favor of expropriating 240,000 homes in the hands of large companies. Although the vote is non-binding and seems unlikely to materialise, at least via expropriations, pressure is mounting on the Berlin local government to control rents. I anticipate that Berlin local government will continue to buy homes from large owners, but at market prices. The latest purchase was of 14,750 homes from both Vonovia and Deutsche Wohnen for €2,460 mn.
Deutsche Wohnen reported good operational results: FFO I increased by 2% and EPRA NTA increased by 1.4%. Market rents up 6% in Berlin, 35.6% gains on privatisations. The offer price is above the EPRA NTA per share (€52.67/share) as reported on 30 June.
Third time around Vonovia has secured the acquisition. Acceptance period ends on 4 October. Gross spread as of 28 September is 0.03%. The deal should close by mid-October. Recommendation is tender.

As of 24 September, the total number of shares tendered, plus the Deutsche Wohnen Shares directly held by the Vonovia, plus the Deutsche Wohnen Shares in respect of which Vonovia was directly and unconditionally entitled to an immediate transfer, and plus the financial instruments relating to the acquisition of Deutsche Wohnen shares directly held by Vonovia amounts to 181,711,364 Deutsche Wohnen shares. This corresponds to approximately 50.49% of the share capital and the voting rights of Deutsche Wohnen.
Vonovia began this round in mid-June, when it launched its first friendly bid to win its competitor. At the time, the cash offer made was €52/share, in addition to the right to cash in the expected dividend of €1.03/share. However, this attempt did not prosper as it just reached a 47.6% support, below the 50% minimum acceptance threshold.
In its second offer this summer, Vonovia raised to €53/share to woo Deutsche Wohnen shareholders. Thus, Vonovia valued its rival at €19.1 bn vs. €18 bn at the beginning of summer.
The resulting merger of the two German real estate companies will result in a conglomerate owning over 500,000 homes on the European market, some 350,000 from Vonovia divided between Germany, Austria and Sweden; and 160,000 from Deutsche Wohnen, which concentrates a good part of its properties in Berlin. The joint valuation of their portfolios reaches €89,000 mn.
Berlin votes in favor of expropriating 240,000 homes in the hands of large companies. Although the vote is non-binding and seems unlikely to materialise, at least via expropriations, pressure is mounting on the Berlin local government to control rents. I anticipate that Berlin local government will continue to buy homes from large owners, but at market prices. The latest purchase was of 14,750 homes from both Vonovia and Deutsche Wohnen for €2,460 mn.
Deutsche Wohnen reported good operational results: FFO I increased by 2% and EPRA NTA increased by 1.4%. Market rents up 6% in Berlin, 35.6% gains on privatisations. The offer price is above the EPRA NTA per share (€52.67/share) as reported on 30 June.
Third time around Vonovia has secured the acquisition. Acceptance period ends on 4 October. Gross spread as of 28 September is 0.03%. The deal should close by mid-October. Recommendation is tender.

Vonovia Has Already 50.49% Of​Deutsche Wohnen

DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. Historically DAX has consisted of 30 companies but following the <a href="https://www.smartkarma.com/entities/wirecard-ag" target="_blank" data-smartkarma-citation="entities:21743:1" rel="noopener">Wirecard AG (WDI GR)</a> scandal, the index was reconstituted and the number of constituents was increased from 30 to 40 to reduce concentration issues and more stringent eligibility requirements were introduced to protect the overall quality of index constituents in future. This reconstitution was completed on 20th September 2021. The DAX Index is reviewed four times a year. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021. More below the fold.

DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. Historically DAX has consisted of 30 companies but following the Wirecard AG (WDI GR) scandal, the index was reconstituted and the number of constituents was increased from 30 to 40 to reduce concentration issues and more stringent eligibility requirements were introduced to protect the overall quality of index constituents in future. This reconstitution was completed on 20th September 2021. The DAX Index is reviewed four times a year. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021. More below the fold.

DAX Index: Quiddity Leaderboard for December 2021

<a href="https://www.smartkarma.com/entities/vonovia-se" target="_blank" data-smartkarma-citation="entities:21736:1" rel="noopener">Vonovia SE (VNA GR)</a> had failed to secure what was its second takeover attempt for <a href="https://www.smartkarma.com/entities/deutsche-wohnen-ag" target="_blank" data-smartkarma-citation="entities:21126:1" rel="noopener">Deutsche Wohnen AG (DWNI GR)</a>, at an adjusted €52/share, with some shareholders declining to tender their shares on a view that the offer undervalued Deutsche Wohnen.
On 1 August 2021, <a href="https://en.vonovia-st.de/download/companies/ma1056/1056_02adhoc/20210801_adhoc_en.pdf" target="_blank" rel="noopener">Vonovia SE entered into a new agreement with Deutsche Wohnen</a>, to launch another voluntary public takeover offer for an increased cash consideration of €53/share.
<ul>
<li>
A new public takeover offer and the publication of a decision to launch such an offer by a bidder pursuant are not permitted for one year following the end of the acceptance period, unless the target consents and the BaFin waives the blocking period, with such a waiver seen as little more than a formality.
</li>
<li>
Vonovia states that "the decision whether to grant the waiver from the blocking period is at the discretion of BaFin and is expected in the upcoming week".
</li>
<li>
Exclusion of a domination and/or profit and loss transfer agreement for a period of three years from 1 August (date of the conclusion of the business combination agreement).
</li>
</ul>
The new offer represents a 2.9% FFO yield. An offer at a significantly higher price was not to be expected, at least in the short term, as it would exceed Deutsche Wohnen's NAV (€52.5/share) and EPRA NNNAV (€ 52.8/share) and value generation by Vonovia would be doubtful.
The deal is highly likely to close now. A gross spread of 0.4% (under 1% annualized) means there are better opportunities elsewhere.

Vonovia SE (VNA GR) had failed to secure what was its second takeover attempt for Deutsche Wohnen AG (DWNI GR), at an adjusted €52/share, with some shareholders declining to tender their shares on a view that the offer undervalued Deutsche Wohnen.
On 1 August 2021, Vonovia SE entered into a new agreement with Deutsche Wohnen, to launch another voluntary public takeover offer for an increased cash consideration of €53/share.


A new public takeover offer and the publication of a decision to launch such an offer by a bidder pursuant are not permitted for one year following the end of the acceptance period, unless the target consents and the BaFin waives the blocking period, with such a waiver seen as little more than a formality.


Vonovia states that "the decision whether to grant the waiver from the blocking period is at the discretion of BaFin and is expected in the upcoming week".


Exclusion of a domination and/or profit and loss transfer agreement for a period of three years from 1 August (date of the conclusion of the business combination agreement).


The new offer represents a 2.9% FFO yield. An offer at a significantly higher price was not to be expected, at least in the short term, as it would exceed Deutsche Wohnen's NAV (€52.5/share) and EPRA NNNAV (€ 52.8/share) and value generation by Vonovia would be doubtful.
The deal is highly likely to close now. A gross spread of 0.4% (under 1% annualized) means there are better opportunities elsewhere.

Vonovia/Deutsche Wohnen: Third Time Around

I recommend selling<a href="https://www.smartkarma.com/entities/deutsche-wohnen-ag" target="_blank" data-smartkarma-citation="entities:21126:1" rel="noopener">Deutsche Wohnen AG (DWNI GR)</a> at the current market price of €51.81. I would not wait for the closing of the offer price as the risk/reward is unfavorable now, in my view.On 4 June, Deutsche Wohnen paid a dividend of €1.03 / share (ex-date on 2 June), after which the price of the Vonovia takeover bid was effectively adjusted to € 52.0 / share (from € 53.03).On 17 June (mid morning) gross spread is 0.36%.At this level, I find the risk/reward unattractive and recommend selling, due to several reasons:<ul>
<li>The closing price on the prior session was is € 51.90 / share,  only -0.2% below the price offered by Vonovia.</li>
<li>Vonovia is the only competitor in Europe large enough to launch a takeover bid for Deutsche Wohnen and generate synergies.</li>
<li>Offer price is already in line with NAV (€52.5/share) and with EPRA NNNAV (€52.8/share).</li>
<li>Regulatory risk. There is concern about the sharp increase in rents, especially in large cities like Berlin. In this environment, it could not be totally ruled out that the operation be rejected to favour competition and prevent rentals from continuing to rise, in spite of guarantees provided by Vonovia.</li>
</ul>

I recommend sellingDeutsche Wohnen AG (DWNI GR) at the current market price of €51.81. I would not wait for the closing of the offer price as the risk/reward is unfavorable now, in my view.On 4 June, Deutsche Wohnen paid a dividend of €1.03 / share (ex-date on 2 June), after which the price of the Vonovia takeover bid was effectively adjusted to € 52.0 / share (from € 53.03).On 17 June (mid morning) gross spread is 0.36%.At this level, I find the risk/reward unattractive and recommend selling, due to several reasons:
The closing price on the prior session was is € 51.90 / share,  only -0.2% below the price offered by Vonovia.
Vonovia is the only competitor in Europe large enough to launch a takeover bid for Deutsche Wohnen and generate synergies.
Offer price is already in line with NAV (€52.5/share) and with EPRA NNNAV (€52.8/share).
Regulatory risk. There is concern about the sharp increase in rents, especially in large cities like Berlin. In this environment, it could not be totally ruled out that the operation be rejected to favour competition and prevent rentals from continuing to rise, in spite of guarantees provided by Vonovia.


Vonovia/Deutsche Wohnen: Update and Change of Recommendation

Germany

Deutsche Wohnen SE operates as a holding company. The Company, through its subsidiaries, focuses on developing and managing residential and commercial properties. Deutsche Wohnen owns and manages residential and nursing facilities for elderly people. Deutsche Wohnen offers property and lease agreement management, ambulant nursing, and assisted living services in Germany.

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Deutsche Wohnen (DWNI GR)

DAX/MDAX/SDAX Quiddity Leaderboard Sep 2022: Final Expectations

Delivery Hero has to climb one rank to get into DAX. MDAX and SDAX could see multiple index changes. Takkt's recent negative momentum could have...

Janaghan Jeyakumar, CFA

Vonovia Has Already 50.49% OfDeutsche Wohnen

Third time around Vonovia has secured the acquisition. Acceptance period ends on 4 October. Gross spread as of 28 September is 0.03%. The deal...

Jesus Rodriguez Aguilar

DAX Index: Quiddity Leaderboard for December 2021

DAX completed its post-Wirecard reconstitution on 20th September 2021. Here is a look at the potential adds and deletes for the next index review...

Janaghan Jeyakumar, CFA

Vonovia/Deutsche Wohnen: Third Time Around

New offer represents a 2.9% FFO yield. An offer at a significantly higher price was not to be expected, as it would exceed EPRA NNNAV (€ 52.8...

Jesus Rodriguez Aguilar

Vonovia/Deutsche Wohnen: Update and Change of Recommendation

I recommend selling Deutsche Wohnen AG (DWNI GR) at the current market price of €51.81. I would not wait for the closing of the offer price as the...

Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

DAX/​​MDAX/​​SDAX Quiddity Leaderboard Sep 2022: Final Expectations

Delivery Hero has to climb one rank to get into DAX. MDAX and SDAX could see multiple index changes. Takkt's recent negative momentum could have...

Janaghan Jeyakumar, CFA

Vonovia Has Already 50.49% Of​Deutsche Wohnen

Third time around Vonovia has secured the acquisition. Acceptance period ends on 4 October. Gross spread as of 28 September is 0.03%. The deal...

Jesus Rodriguez Aguilar

DAX Index: Quiddity Leaderboard for December 2021

DAX completed its post-Wirecard reconstitution on 20th September 2021. Here is a look at the potential adds and deletes for the next index review...

Janaghan Jeyakumar, CFA

Vonovia/Deutsche Wohnen: Third Time Around

New offer represents a 2.9% FFO yield. An offer at a significantly higher price was not to be expected, as it would exceed EPRA NNNAV (€ 52.8...

Jesus Rodriguez Aguilar

Vonovia/Deutsche Wohnen: Update and Change of Recommendation

I recommend selling Deutsche Wohnen AG (DWNI GR) at the current market price of €51.81. I would not wait for the closing of the offer price as the...

Jesus Rodriguez Aguilar

DAX/MDAX/SDAX Quiddity Leaderboard Sep 2022: Final Expectations

Vonovia Has Already 50.49% OfDeutsche Wohnen