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Listed German residential landlord Deutsche Wohnen has dropped its €4.6 bn bid to acquire LEG Immobilien, the number three in the sector. The move opens the way for Vonovia, the largest listed German apartment owner, to re-activate its previously rejected offer to buy Deutsche Wohnen.

In the latest twist in the ongoing consolidation taking place in the German listed residential sector, Deutsche Wohnen's board announced late on Wednesday that there was no longer a shareholder majority in favour of the LEG merger. As a result an Extraordinary General Meeting planned for 28 October to ratify a formal public offer for LEG was cancelled.

Deutsche Wohnen said in a statement that 'influential proxy advisors' to shareholders initially backed the proposed acquisition of LEG which was unveiled on 20 September. However, they changed their recommendation after Vonovia's 'hostile bid' to acquire Deutsche Wohnen in mid-October.

While Deutsche Wohnen's board quickly shot down Vonovia's advances, Vonovia vowed to re-activate its offer should the merger between Deutsche Wohnen and LEG not proceed.

The prospect of a Vonovia bid now looms large as Deutsche Wohnen CEO Michael Zahn was forced to concede on Wednesday that the proposed LEG deal was a dead duck. 'Despite the initial widespread support for the combination with LEG, the changes in the recommendations of the most important proxy advisors mean that it is no longer possible to obtain the 75% majority at the Extraordinary General Meeting. As a consequence, we are no longer able to continue pursuing our planned offer for LEG.'

However, Zahn remains adamantly opposed to a takeover of the company he heads. In the statement, he said: 'We will now go about the task of dealing with Vonovia's attempt with all of the necessary strength, diligence and support of our shareholders. The offer presented is not attractive for Deutsche Wohnen shareholders.'

Size matters
The listed German residential sector has been undergoing wave after wave of consolidation in recent years, with Vonovia (formerly Deutsche Annington) leading the process. Vonovia most recently took over Gagfah, formerly the number 3 in the sector, and the combined group has a portfolio of 350,000 housing units worth €21 bn.

Deutsche Wohnen, Vonovia's nearest rival, owns 141,900 residential units and 2,100 commercial properties. A merger with LEG would have boosted its holdings to 250,000 flats valued at around €17 bn - still smaller than Vonovia but a serious contender.

A Vonovia-Deutsche Wohnen merger would create an unrivalled colossus with 510,000 homes in Germany.

In the takeover bid rejected by Deutsche Wohnen's board as too low, Vonovia said it would offer Deutsche Wohnen shareholders seven of its own shares plus €83.14 in cash for every 11 Deutsche Wohnen shares. This is equivalent to €25.86 per share. It claimed this represented a premium of around 9.8% on the unaffected share price of 8 October 2015 and 11% on the average share price over the last three months.

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