European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p><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.</p>
<p>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 <strong>new agreement</strong> with Deutsche Wohnen</a>, to launch another voluntary public takeover offer for an <strong>increased cash consideration</strong> of <strong>€53/share.</strong></p>
<ul>
<li>
<p>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, <em>with such a waiver seen as little more than a formality</em>.</p>
</li>
<li>
<p>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".</p>
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<li>
<p>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).</p>
</li>
</ul>
<p>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.</p>
<p>The deal is highly likely to close now. A <strong>gross spread of 0.4%</strong> (under 1% annualized) means <strong>there are better opportunities elsewhere</strong>.</p>

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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<p data-bind="visible: !isCollapsed(), html: content">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 <strong>€52/share in cash</strong> <strong>plus a cash dividend of €1.03</strong> (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".</p>
<ul>
<li>The offer represents an <strong>implied equity value of €17,876 mn</strong> and an <strong>implied EV of c. €29,384 mn</strong>.</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, <strong>33.4x Deal value/est. FFO</strong> and <strong>101% Deal value/Consensus NAV</strong>. </li>
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<p data-bind="visible: !isCollapsed(), html: content">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.</p>
<p data-bind="visible: !isCollapsed(), html: content">The <em>main beneficiary today is Deutsche Wohnen</em>, 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.</p>
<p data-bind="visible: !isCollapsed(), html: content">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.</p>
<p>The offer price seems <strong>bang-in-line with consensus NAV of €52.5/share (and with EPRA NNNAV of €52.8/share)</strong>. It also represents <strong>c. 4.4% FFO yield</strong> and is in line with Median Capital IQ consensus TP of is €52/share.</p>
<p>There has been <strong>no mention to synergies</strong> 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 <strong>up to €1.9/share</strong>.</p>
<p>The deal is <em>highly likely to close</em>. <strong>Gross spread is 1.6%</strong>, slightly <strong>over 6% annualised</strong>, <strong>provided shares are acquired prior to dividend payment</strong>. Recommendation is <strong>Long DWNI GR</strong>.</p>
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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.












  

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

<p>We continue to believe the path of least resistance is higher for global equities. As a result, our outlook remains bullish and we suggest buying any dips. This week we are focusing on Consumer Staples and Health Care, two Sectors that have been less-loved over the past several months. We also highlight additional ideas in the following Sectors: Services, Technology, Financials, Real Estate, Communications, and Utilities.</p>

We continue to believe the path of least resistance is higher for global equities. As a result, our outlook remains bullish and we suggest buying any dips. This week we are focusing on Consumer Staples and Health Care, two Sectors that have been less-loved over the past several months. We also highlight additional ideas in the following Sectors: Services, Technology, Financials, Real Estate, Communications, and Utilities.

EM Equities At New Highs Despite Some Caution Signs

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

<p>A few hours ago, STOXX announced the results of the Deutscher Aktienindex (DAX) index review. The constituent changes will be effective from 22 June and the rebalancing trades will need to be done at the close on 19 June.</p><p>As <a href="https://www.smartkarma.com/insights/dax-index-rebalance-preview-checking-out-of-lufthansa" target="_blank" rel="noopener">expected</a>, <a href="https://www.smartkarma.com/entities/deutsche-wohnen-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21126:1">Deutsche Wohnen Ag (DWNI GR)</a> has been included in the index and <a href="https://www.smartkarma.com/entities/deutsche-lufthansa-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21667:1">Deutsche Lufthansa Ag (LHA GR)</a> has been excluded.</p><p>This marks the end of a 32 year stay in the index for <a href="https://www.smartkarma.com/entities/deutsche-lufthansa-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21667:1">Deutsche Lufthansa Ag (LHA GR)</a> - the stock was part of the initial DAX index composition from 30 December 1987.</p>

A few hours ago, STOXX announced the results of the Deutscher Aktienindex (DAX) index review. The constituent changes will be effective from 22 June and the rebalancing trades will need to be done at the close on 19 June.As expected, Deutsche Wohnen Ag (DWNI GR) has been included in the index and Deutsche Lufthansa Ag (LHA GR) has been excluded.This marks the end of a 32 year stay in the index for Deutsche Lufthansa Ag (LHA GR) - the stock was part of the initial DAX index composition from 30 December 1987.

DAX Index Review - BIG Impact on Deutsche Wohnen

<p>STOXX will announce the results of the June review of the DAX equity indices on 3 June. The constituent changes will be effective from 22 June and the rebalancing trades will need to be done at the close on 19 June.</p><p>At the current time, we see a high probability of <a href="https://www.smartkarma.com/entities/deutsche-wohnen-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21126:1">Deutsche Wohnen Ag (DWNI GR)</a> being included in the DAX index and of <a href="https://www.smartkarma.com/entities/deutsche-lufthansa-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21667:1">Deutsche Lufthansa Ag (LHA GR)</a> being excluded.</p><p>There have been rumours of <a href="https://www.smartkarma.com/entities/vonovia-se" target="_blank" rel="noopener" data-smartkarma-citation="entities:21736:1">Vonovia SE (VNA GR)</a> attempting a takeover of <a href="https://www.smartkarma.com/entities/deutsche-wohnen-ag" target="_blank" rel="noopener" data-smartkarma-citation="entities:21126:1">Deutsche Wohnen Ag (DWNI GR)</a> but those have since been shot down by Vonovia.</p>

STOXX will announce the results of the June review of the DAX equity indices on 3 June. The constituent changes will be effective from 22 June and the rebalancing trades will need to be done at the close on 19 June.At the current time, we see a high probability of Deutsche Wohnen Ag (DWNI GR) being included in the DAX index and of Deutsche Lufthansa Ag (LHA GR) being excluded.There have been rumours of Vonovia SE (VNA GR) attempting a takeover of Deutsche Wohnen Ag (DWNI GR) but those have since been shot down by Vonovia.

DAX Index Rebalance Preview - Checking Out of Lufthansa

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)

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

EM Equities At New Highs Despite Some Caution Signs

We continue to believe the path of least resistance is higher for global equities. As a result, our outlook remains bullish and we suggest buying...

Vermilion Research

DAX Index Review - BIG Impact on Deutsche Wohnen

A few hours ago, STOXX announced the results of the Deutscher Aktienindex (DAX) index review. The constituent changes will be effective from 22...

Brian Freitas

DAX Index Rebalance Preview - Checking Out of Lufthansa

STOXX will announce the results of the June review of the DAX equity indices on 3 June. The constituent changes will be effective from 22 June and...

Brian Freitas

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