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Deutsche Wohnen:Minority shareholder buyout (DPLTA): Difference between revisions
Deutsche Wohnen:Minority shareholder buyout (DPLTA) (view source)
Revision as of 14:01, 25 September 2024
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== Upsides and Risks To Exchange Price == | == Upsides and Risks To Exchange Price == | ||
'''Upsides''' | |||
'''''LTV is risk factor for Vonovia and merger with Dt. Wohnen will reduce it''''' | |||
I still think Vonovias main reason to complete the takeover is bring down their LTV ratio, which is currently, as of H2 2024, standing at a very high [https://www.vonovia.com/en/investors/latest-publications#analystpresentation 47.3%] (presentation p. 10) while Dt. Wohnen has a LTV of 30% (p.2) As a reminder Vonovias bond covenant is at 60%. At this threshold, creditors could size assets and force sell them. | |||
'''''Reduced operational costs and allows control over Deutsche Wohnen's cash''''' | |||
If Vonovia doesn’t provide an attractive compensation, Elliot Investment (which has 3% stake) will probably hold on to its shares. This will be a constant headache for Vonovia whenever it wants to borrow funds from Deutsche Wohnen as seen in the [https://www.reuters.com/business/elliott-seeks-investigation-into-loan-by-deutsche-wohnen-vonovia-2023-05-22/ past]. I also assume that Vonovia wants to exert control over Deutsche Wohnen’s cash before a turnaround in German real estate sector fully materializes. This should improve their ability to borrow, which would lead to less pressure to sell property and allow them to seize buying/development opportunities if they arise. Furthermore, a good/fast takeover will clear one major time-consuming issue for management and there will be less expenses for having duplicated functions in accounting, investor reporting etc. and all remaining synergies from the merger can be realized. | |||
'''''Turnaround in German real estate sector''''' | |||
According to insights<ref>https://forum.investmentwiki.org/t/german-real-estate-market/150/13</ref>, the German real estate sector is beginning to stabilize. This will likely boost real estate shares in the near future. As such, Vonovia will likely offer an attractive offer in order to avoid squeezing out minority shareholders in future at a higher price. | |||
'''''Vonovia would want to avoid one billion euros state tax by increasing its stake to 90%''''' | |||
To achieve a squeeze-out, Vonovia's voting rights in Deutsche Wohnen would need to exceed 90%. This will result in [[Deutsche Wohnen:Minority shareholder buyout (DPLTA)#What Happens If Some Shareholders Don.27t Take Part in DPLTA.3F|1 billion euros]] state tax. I assume that Vonovia would want to avoid this until there is a complete pick up in the German real estate sector. Hence the best thing to do is offer attractive compensation that will likely lead to elimination of all minority shareholders at the DPLTA stage. | |||
=== Risks === | === Risks === | ||
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Deutsche Wohnen's share price in the last three months up to September 18- when the DPLTA was initiated was low. Between June 18 and September 18, the highest price was EUR 23.60 while the lowest was EUR 17.36. That is an average of EUR 20.48<ref>https://www.google.com/search?q=Deutsche+wohnen+share+price&sca_esv=02c44965d6d4b280&sca_upv=1&sxsrf=ADLYWIKBoNMdn0KLB-hoUkpdhMJoY-SfxA%3A1727266605749&ei=Lf_zZr-yLbmI7NYP2tay8QU&ved=0ahUKEwj__N7Did6IAxU5BNsEHVqrLF4Q4dUDCBA&uact=5&oq=Deutsche+wohnen+share+price&gs_lp=Egxnd3Mtd2l6LXNlcnAiG0RldXRzY2hlIHdvaG5lbiBzaGFyZSBwcmljZTIEECMYJzIGEAAYBxgeMgUQABiABDILEAAYgAQYhgMYigUyCxAAGIAEGIYDGIoFMggQABiABBiiBEiFI1AAWIAgcAB4AZABAJgBrAKgAe0eqgEGMi0xNC4xuAEDyAEA-AEBmAIGoALlDJgDAJIHAzItNqAHjVs&sclient=gws-wiz-serp</ref>. | Deutsche Wohnen's share price in the last three months up to September 18- when the DPLTA was initiated was low. Between June 18 and September 18, the highest price was EUR 23.60 while the lowest was EUR 17.36. That is an average of EUR 20.48<ref>https://www.google.com/search?q=Deutsche+wohnen+share+price&sca_esv=02c44965d6d4b280&sca_upv=1&sxsrf=ADLYWIKBoNMdn0KLB-hoUkpdhMJoY-SfxA%3A1727266605749&ei=Lf_zZr-yLbmI7NYP2tay8QU&ved=0ahUKEwj__N7Did6IAxU5BNsEHVqrLF4Q4dUDCBA&uact=5&oq=Deutsche+wohnen+share+price&gs_lp=Egxnd3Mtd2l6LXNlcnAiG0RldXRzY2hlIHdvaG5lbiBzaGFyZSBwcmljZTIEECMYJzIGEAAYBxgeMgUQABiABDILEAAYgAQYhgMYigUyCxAAGIAEGIYDGIoFMggQABiABBiiBEiFI1AAWIAgcAB4AZABAJgBrAKgAe0eqgEGMi0xNC4xuAEDyAEA-AEBmAIGoALlDJgDAJIHAzItNqAHjVs&sclient=gws-wiz-serp</ref>. | ||
'''''Appraisal proceedings doesn't prevent the DPLTA or squeeze-out from being finalized''''' | |||
Vonovia could give Deutsche Wohnen minority shareholders unattractive offer and proceed to complete the DPLTA or squeeze-out. However, this only happens if they are sure that the real estate prospects will offset the premium given by the courts as well as associated penalties. | |||
'''''Risk Vonovia stock price falling''''' | |||
* Regardless of how exactly the exchange ratio turns out a falling Vonovia stock price is certainly a possibility and risk. This risk could be high given the recent surge in stock price and if the german property sector would develop badly for example due to an economic downturn. | |||
== How Does DPLTA Works? == | == How Does DPLTA Works? == | ||
* A DPLTA can initiated by a company once it achieves 75% voting rights (which Vonovia exceeds)<ref name=": | * A DPLTA can initiated by a company once it achieves 75% voting rights (which Vonovia exceeds)<ref name=":1">https://www.pplaw.com/sites/default/files/2020-07/wg-en-2012-squeeze-outs.pdf</ref>. | ||
* The price offered is usually the greater of fair value, weighted price in the past three months preceding domination announcement or price offered to other shareholders in the last six months<ref name=":2">https://www.specialsituationinvestments.com/2020/01/adler-real-estate-adl-de-merger-arbitrage-10-upside/</ref>. | * The price offered is usually the greater of fair value, weighted price in the past three months preceding domination announcement or price offered to other shareholders in the last six months<ref name=":2">https://www.specialsituationinvestments.com/2020/01/adler-real-estate-adl-de-merger-arbitrage-10-upside/</ref>. | ||
* The dividend to be paid is calculated based on the company's historical earnings and future earnings prospects. A Federal Court of Justice recently concluded that the market value of a company can be used to determine the guaranteed dividend<ref name=":2" />. | * The dividend to be paid is calculated based on the company's historical earnings and future earnings prospects. A Federal Court of Justice recently concluded that the market value of a company can be used to determine the guaranteed dividend<ref name=":2" />. | ||
* The compensation offered by the acquirer needs to be verified by an independent auditor appointed by the court. The auditor uses a valuation method developed by the German institute of accountants to determine the adequacy of the compensation<ref name=":1" | * The compensation offered by the acquirer needs to be verified by an independent auditor appointed by the court. The auditor uses a valuation method developed by the German institute of accountants to determine the adequacy of the compensation<ref name=":1" />. | ||
* If the minority shareholders are not satisfied with the price or annual guaranteed dividend, they can challenge it in a court. Based on the cases decided between 2016 and 2019, the court increased the price by around 10% to 30%<ref name=":2" />. | * If the minority shareholders are not satisfied with the price or annual guaranteed dividend, they can challenge it in a court. Based on the cases decided between 2016 and 2019, the court increased the price by around 10% to 30%<ref name=":2" />. | ||
* During the appraisal period, the external shareholders continue to hold the shares and receive a dividend. Eventually, if the court decides that the compensation was not fair, the shareholders receive the difference plus interest of between 0.88% and 5% as at 2019. The court's compensation is usually not less than that offered by the acquiring company <ref name=":2" />. | * During the appraisal period, the external shareholders continue to hold the shares and receive a dividend. Eventually, if the court decides that the compensation was not fair, the shareholders receive the difference plus interest of between 0.88% and 5% as at 2019. The court's compensation is usually not less than that offered by the acquiring company <ref name=":2" />. | ||
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== What Happens If Some Shareholders Don't Take Part in DPLTA? == | == What Happens If Some Shareholders Don't Take Part in DPLTA? == | ||
* If some shareholders fail to take part in the DPLTA, they will continue to hold their shares and be entitled to an annual guaranteed dividend<ref | * If some shareholders fail to take part in the DPLTA, they will continue to hold their shares and be entitled to an annual guaranteed dividend<ref>https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2020/03/ger-whitepaper-corporate-public-takeovers.pdf</ref>. | ||
* However, the acquirer (Vonovia) can in future increase its stake to between 90% and 95% and initiate a squeeze-out of the remaining shareholders. Here, the shareholders, will be forced to sell their shares for adequate compensation. A shareholder who owns at least a nominal amount of €1,000 in the target could try to delay the squeeze-out resolution through legal proceedings. However, the German Stock Corporation Act provides for a fast tracking of such proceedings, allowing for a resolution within three to six months. Compensation proceedings are only handled after registration of the squeeze-out<ref name=":1" />. | * However, the acquirer (Vonovia) can in future increase its stake to between 90% and 95% and initiate a squeeze-out of the remaining shareholders. Here, the shareholders, will be forced to sell their shares for adequate compensation. A shareholder who owns at least a nominal amount of €1,000 in the target could try to delay the squeeze-out resolution through legal proceedings. However, the German Stock Corporation Act provides for a fast tracking of such proceedings, allowing for a resolution within three to six months. Compensation proceedings are only handled after registration of the squeeze-out<ref name=":1" />. | ||
* Squeeze-outs are in three forms. A takeover squeeze -out, a merger squeeze-out and a general corporate squeeze-out. A merger squeeze-out can be initiated by the acquirer (Vonovia) once it achieves 90% voting rights. However, it will have to merge with another corporation such as the target and initiate a squeeze-out within three months. A merger will likely result in a real estate tax which is around 6% of the real estate value in Berlin<ref>https://www.pwc.com/gx/en/financial-services/publications/assets/pwc-real-estate-transfer-tax.pdf</ref>. | * Squeeze-outs are in three forms. A takeover squeeze -out, a merger squeeze-out and a general corporate squeeze-out. A merger squeeze-out can be initiated by the acquirer (Vonovia) once it achieves 90% voting rights. However, it will have to merge with another corporation such as the target and initiate a squeeze-out within three months. A merger will likely result in a real estate tax which is around 6% of the real estate value in Berlin<ref>https://www.pwc.com/gx/en/financial-services/publications/assets/pwc-real-estate-transfer-tax.pdf</ref>. A general corporate squeeze-out requires the acquirer to have at least 95% voting rights in the target. On the other hand, a takeover squeeze-out requires the acquirer to attain at least 95% voting rights in the target and initiate a squeeze-out within three months. The The advantage of this type of squeeze-out is that if the takeover bid was accepted by at least 90% of the shareholders, the offer price offered during the takeover can be considered as adequate compensation. All the other rules mentioned above will apply in these types of squeeze-outs<ref name=":1" />. | ||
== Past DPLTA Real Estate Actions In Germany == | == Past DPLTA Real Estate Actions In Germany == | ||