European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>I recommend <strong>selling</strong><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 <strong>current market price of €51.81</strong>. I would not wait for the closing of the offer price as the <strong>risk/reward is unfavorable now</strong>, in my view.</p><p>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 e<strong>ffectively adjusted to € 52.0</strong> / share (from € 53.03).</p><p>On 17 June (mid morning) <strong>gross spread is 0.36%</strong>.</p><p>At this level, I find the risk/reward unattractive and <strong>recommend selling</strong>, due to several reasons:</p><ul>
<li><p>The closing price on the prior session was is € 51.90 / share,  only -0.2% below the price offered by Vonovia.</p></li>
<li><p>Vonovia is the only competitor in Europe large enough to launch a takeover bid for Deutsche Wohnen and generate synergies.</p></li>
<li><p>Offer price is already in line with NAV (€52.5/share) and with EPRA NNNAV (€52.8/share).</p></li>
<li><p>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.</p></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

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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.












  

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<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

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)

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

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

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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