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>The EURO STX 50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.</li>
<li>Historically, these Rebalance events have had significant volume impact and they generally involve large cap names. </li>
<li>In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.</li>
</ul>


The EURO STX 50 Index is one of the most highly-tracked indices in mainland Europe and the annual index review takes place in September.
Historically, these Rebalance events have had significant volume impact and they generally involve large cap names. 
In this insight, we take a look the names leading the race to become ADDs/DELs for the upcoming index review in September 2023.


Quiddity Leaderboard ES50 Sep 23:  Eurozone’s Annual Big Impact Rebal Trades; US$1.1bn+ for ADDs

<ul>
<li>The EURO STOXX 50 Index is one of the most highly-watched indices in mainland Europe and the annual index review takes place in September.</li>
<li>In <a href="https://www.smartkarma.com/insights/euro-stoxx-50-quiddity-leaderboard-for-sep-22-eurozone-s-annual-big-impact-rebal-trades" target="_blank" data-smartkarma-citation="insights:72736" rel="noopener">Euro Stoxx 50 Quiddity Leaderboard for Sep 22: Eurozone's Annual Big Impact Rebal Trades</a>, we looked at the Potential ADDs/DELs and the historical performance of Rebalance Events. </li>
<li>With less than a week left until the Reference date, we take a final look at the rankings in this insight.</li>
</ul>


The EURO STOXX 50 Index is one of the most highly-watched indices in mainland Europe and the annual index review takes place in September.
In Euro Stoxx 50 Quiddity Leaderboard for Sep 22: Eurozone's Annual Big Impact Rebal Trades, we looked at the Potential ADDs/DELs and the historical performance of Rebalance Events. 
With less than a week left until the Reference date, we take a final look at the rankings in this insight.


EURO STOXX 50 Quiddity Leaderboard: Two Potential ADDs with ~US$1bn Flows Each

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

<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

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On 24 May, <a href="https://www.smartkarma.com/entities/vonovia-se" target="_blank" data-smartkarma-citation="entities:21736:1" rel="noopener">Vonovia SE (VNA GR)</a> and <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> <a href="https://ir.deutsche-wohnen.com/websites/dewohnen/English/6100/news.html?newsID=2098744" target="_blank" rel="noopener">announced</a> they had signed an agreement on a voluntary public takeover offer to be launched Vonovia for the whole share capital Deutsche Wohnen next June. Shareholders will receive €52/share in cash plus a cash dividend of €1.03 (tbd at the AGM of Deutsche Wohnen). There is a minimum acceptance threshold of over 50%. The combined company will carry the name "Vonovia SE".
<ul>
<li>The offer represents an implied equity value of €17,876 mn and an implied EV of c. €29,384 mn.</li>
<li>The offer also represents a premium of approximately 17.9% on the closing price on 21 May 2021 and 25.0% on the 3-month VWAP.</li>
<li>Pricing ratios: 36.8 EV/Fwd EBITDA, 32.3x Fwd P/E, 33.4x Deal value/est. FFO and 101% Deal value/Consensus NAV. </li>
</ul>
The operation makes strategic sense for both companies. The residential rental business offers low returns, therefore operating leverage and economies of scale are paramount. The resulting company would exceed 500,000 rental homes, valued at €85 bn and largely concentrated in Germany.
The main beneficiary today is Deutsche Wohnen, given that the price offered implies a premium of 18% over its price, even exceeding consensus NAV (€ 52.5 / share). M&amp;A in the sector is subject to acceptance by local authorities, hence the measures announced (see under "deal terms"). It also requires the target's support, the failed October 2015 hostile bid of Vonovia for Deutsche Wohnen is a good example.
In the case of Vonovia, the market will take the deal with some caution. Although it will allow it to increase Vonovia's profitability, it will probably have a dilutive effect in terms of NAV. An all-cash offer could bring Vonovia's LTV close to 60% hence equity will be used to bring LTV back to its stated 40-45% policy. The rights issue (26% of its market cap) will foreseeably be carried out with a strong discount over NAV (€ 63.22/share), since it closed on 21 May at a c. 18% discount.
The offer price seems bang-in-line with consensus NAV of €52.5/share (and with EPRA NNNAV of €52.8/share). It also represents c. 4.4% FFO yield and is in line with Median Capital IQ consensus TP of is €52/share.
There has been no mention to synergies in the release though, but being conservative, €84 mn can be used (synergies estimated by Vonovia in the prior takeover attempt in 2015), taxed and capitalized, they could be worth up to €1.9/share.
The deal is highly likely to close. Gross spread is 1.6%, slightly over 6% annualised, provided shares are acquired prior to dividend payment. Recommendation is Long DWNI GR.
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On 24 May, Vonovia SE (VNA GR) and Deutsche Wohnen AG (DWNI GR) announced they had signed an agreement on a voluntary public takeover offer to be launched Vonovia for the whole share capital Deutsche Wohnen next June. Shareholders will receive €52/share in cash plus a cash dividend of €1.03 (tbd at the AGM of Deutsche Wohnen). There is a minimum acceptance threshold of over 50%. The combined company will carry the name "Vonovia SE".

The offer represents an implied equity value of €17,876 mn and an implied EV of c. €29,384 mn.
The offer also represents a premium of approximately 17.9% on the closing price on 21 May 2021 and 25.0% on the 3-month VWAP.
Pricing ratios: 36.8 EV/Fwd EBITDA, 32.3x Fwd P/E, 33.4x Deal value/est. FFO and 101% Deal value/Consensus NAV. 

The operation makes strategic sense for both companies. The residential rental business offers low returns, therefore operating leverage and economies of scale are paramount. The resulting company would exceed 500,000 rental homes, valued at €85 bn and largely concentrated in Germany.
The main beneficiary today is Deutsche Wohnen, given that the price offered implies a premium of 18% over its price, even exceeding consensus NAV (€ 52.5 / share). M&amp;A in the sector is subject to acceptance by local authorities, hence the measures announced (see under "deal terms"). It also requires the target's support, the failed October 2015 hostile bid of Vonovia for Deutsche Wohnen is a good example.
In the case of Vonovia, the market will take the deal with some caution. Although it will allow it to increase Vonovia's profitability, it will probably have a dilutive effect in terms of NAV. An all-cash offer could bring Vonovia's LTV close to 60% hence equity will be used to bring LTV back to its stated 40-45% policy. The rights issue (26% of its market cap) will foreseeably be carried out with a strong discount over NAV (€ 63.22/share), since it closed on 21 May at a c. 18% discount.
The offer price seems bang-in-line with consensus NAV of €52.5/share (and with EPRA NNNAV of €52.8/share). It also represents c. 4.4% FFO yield and is in line with Median Capital IQ consensus TP of is €52/share.
There has been no mention to synergies in the release though, but being conservative, €84 mn can be used (synergies estimated by Vonovia in the prior takeover attempt in 2015), taxed and capitalized, they could be worth up to €1.9/share.
The deal is highly likely to close. Gross spread is 1.6%, slightly over 6% annualised, provided shares are acquired prior to dividend payment. Recommendation is Long DWNI GR.












  

Germany

Vonovia SE provides real estate services. The Company manages, leases, and sells apartments. Vonovia offers residential real estate to customers throughout Germany.

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Vonovia (VNA GR)

Quiddity Leaderboard ES50 Sep 23: Eurozone’s Annual Big Impact Rebal Trades; US$1.1bn+ for ADDs

Vonovia SE (VNA GR) is a high-conviction DEL and Wolters Kluwer Nv (WKL NA) but Ferrari NV (RACE IM) are leading the race to take Vonovia's slot in...

Janaghan Jeyakumar, CFA

EURO STOXX 50 Quiddity Leaderboard: Two Potential ADDs with ~US$1bn Flows Each

I expect 2 ADDs with ~US$1bn inflows each and 2 DELs with ~US$0.5bn in outflows each. While flows are significant, the LONG ADDs-SHORT DELs Trade...

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

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: Agreed Takeover

Offer bang-in-line with consensus NAV (€52.5/share). No mention to synergies though they could be worth up to €1.9/share. Highly likely to close....

Jesus Rodriguez Aguilar

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52-week Range

Market Cap (USDm)

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Dividend (Yield)

Quiddity Leaderboard ES50 Sep 23: Eurozone’s Annual Big Impact Rebal Trades; US$1.1bn+ for ADDs

Vonovia SE (VNA GR) is a high-conviction DEL and Wolters Kluwer Nv (WKL NA) but Ferrari NV (RACE IM) are leading the race to take Vonovia's slot in...

Janaghan Jeyakumar, CFA

EURO STOXX 50 Quiddity Leaderboard: Two Potential ADDs with ~US$1bn Flows Each

I expect 2 ADDs with ~US$1bn inflows each and 2 DELs with ~US$0.5bn in outflows each. While flows are significant, the LONG ADDs-SHORT DELs Trade...

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

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: Agreed Takeover

Offer bang-in-line with consensus NAV (€52.5/share). No mention to synergies though they could be worth up to €1.9/share. Highly likely to close....

Jesus Rodriguez Aguilar

Vonovia Has Already 50.49% OfDeutsche Wohnen