US hedge fund Davidson Kempner, which owns more than 3% of German property group Deutsche Wohnen (ETR:DWNI), is going into battle for the minority shareholders in the company as the striking of an acquisition deal by Vonovia SE (ETR:VNA) edges closer.
Vonovia launched an opportunistic bid for Deutsche Wohnen and offered key members of the Management Board of Deutsche Wohnen attractive roles in the enlarged company. The Deutsche Wohnen board has subsequently taken a number of initiatives that are “unprecedented and legally questionable”, according to Davidson Kempner, with the “sole purpose of helping Vonovia acquire control in the face of shareholder resistance to the offer terms.”
Despite the majority of Deutsche Wohnen shareholders rejecting the original offer, the company’s board agreed an amended offer very quickly with a minimum adjustment to the offer terms. Recognising the risk that the amended offer would be rejected once again, the board also included a number of measures to ensure Vonovia’s success.
Buch: deal can no longer fail
Vonovia has formally ditched a requirement for the majority of shareholders to back the bid, and its CEO Rolf Buch told Reuters that this meant the deal could no longer fail. It does not bode well for the significant number of shareholders who are not happy with the deal.
Among these are the provision to Vonovia of almost 10% of Detusche Wohnen shares via the sale of 3.5% of treasury shares for €52 a share (below the takeover offer of €53/share and the sale of a further 0.93% of treasury shares at €53//share. The Board also agreed to waive all conditions, which forces many shareholders to sell or tender their shares as the takeover is effectively considered as ‘over’ prior to Vonovia even acquiring the majority support of Deutsche Wohnen shareholders.
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It is being described as a ‘dangerous precedent’ by Davidson Kempner. Vonovia needs 50% of the shares and currently controls over 30%. Vonovia could effectively be given control if the Deutsche Wohnen Board provides it with enough to get it over the line.
Shareholder rights trampled on
Vonovia and Deutsche Wohnen have demonstrated that as long as the Management and Supervisory Boards of both companies want a deal to come together, shareholders’ opinions and voting rights can largely be cast aside. This creates a dangerous precedent in Germany, in which management boards can effectively decide the fate of a company and undermine shareholder democracy.
There is now a serious threat that Vonovia makes a delisting offer for Deutsche Wohnen, a large DAX company with a significant free float. A delisting provides no meaningful benefit to Deutsche Wohnen and it effectively forces many public shareholders to sell or tender their Deutsche Wohnen shares and enable Vonovia to increase its control.
Many market observers and German institutions saw this aggressive measure used in the Rocket Internet delisting offer in 2020, another situation marred by material corporate governance failures.
Davidson Kempner applies for injunction
Davidson Kempner said it has applied for an injunction to prevent the primary share issuance of 5.17% and the sale of 0.93% treasury shares. The fund manager also said it would be reserving its rights to pursue further legal action.
Deutsche Wohnen is defending its position on the grounds that it is better to be acquired than have a big rival sitting on so much of its stock. Another problem is the price being offered, which even at book value, is going to go up as the value of residential property in Germany rises. Currently the German regulator does not seem worried.
The minimum acceptance period for the offer has been extended from 20 September to 4 October. Shares in Vonovia have dropped recently from a peak of €61 on 20 August, to trade at €53.70 at time of writing.