Following the Monday morning announcement by IMMOFINANZ of plans for a partial public offer for CA Immo, CEO Eduard Zehetner and the designated CEO Oliver Schumy explained the reasons behind this step and answered questions at a quickly arranged press conference.Zehetner started with the recent history: During the past year, IMMOFINANZ evaluated the possibility of bringing the two companies closer together. At the beginning of 2014 – before UniCredit‘s exit from CA Immo – IMMOFINANZ was contacted and asked to think about possibly linking the two companies. “We signalised our principal interest, but were still very busy with the approaching spin-off of BUWOG“, explained Zehetner. However, we did start a general evaluation“. “In the end, we had very different ideas as to which company would take over the other, although it really should have been obvious – the larger company would take over the smaller one.“ A detailed analysis would also have been required to determine the possible effects of a merger on the land transfer tax payable in Germany.
An agreement was not reached, and UniCredit then started the sale process for its investment in CA Immo. IMMOFINANZ announced its interest at that time and emphasised that the two companies would fit very well together. The investment was, in the end, sold to the O1 Group for a price of EUR 18.5 per share.
CA Immo and O1 announced an offer for IMMOFINANZ at two different price indications in recent weeks (one at around EUR 2.51 per share and then at EUR 2.80 per share). Market rumours were also confirmed that an investor was attempting to acquire a larger stake in IMMOFINANZ. CA Immo has since announced the purchase of roughly 3% of IMMOFINANZ in recent months.
After IMMOFINANZ not only completed the very successful spin-off of BUWOG, but also monetarised part of its investment in BUWOG through an exchangeable bond, the time was right to rethink the idea of linking the two companies, explained Zehetner, referring, among others, to IMMOFINANZ’s cash balance of clearly over EUR 600 million at the end of January (which is expected to increase further due to additional asset sales before the end of the current financial year). Therefore, the first step was the announcement of a partial voluntary public offer for up to 29% of CA Immo. The price was specified at EUR 18.5 per share.
The O1 Group, which also paid EUR 18.5 per share for its investment in CA Immo, could tender these shares in connection with our offer (and in accordance with the proportional allocation). And further: “We intend to gain control over CA Immo in order to pave the way for full consolidation“, added Zehetner. It remains to be seen whether this goal will be met through the first step. If not, another step will follow.
Full consolidation is generally required when a subsidiary is controlled by the parent company – which, in this case, would be IMMOFINANZ. The classification of a company as a subsidiary is based on the control concept defined by IFRS 10, an international accounting standard. This classification not only considers the majority of voting rights, but also includes a general evaluation of the parent company’s possibilities to exercise economic influence over the subsidiary.
Of course, IMMOFINANZ is available for discussions with the management of CA Immo and the O1 Group. “We have always emphasised that it makes strategic sense when two companies that are active in the same regions and asset classes move closer together over the long-term. These overlaps make it a generally reasonable step“, commented IMMOFINANZ Executive Board member Oliver Schumy.
Synergies will arise, among others, from the joint management of a broader property portfolio, the realisation of previously unused potential in CA Immo (for example, development sites in Germany) and a stronger position in the individual markets (e.g. rental strategy, products, etc.)
And now a few questions:
What is the market capitalisation and portfolio structure of both companies?
Based on the closing price on Friday, IMMOFINANZ has a market value of approx. EUR 3.1 billion and CA Immo approx. EUR 1.7 billion. This higher capitalisation also gives IMMOFINANZ greater opportunities on the capital market.
IMMOFINANZ Group’s property portfolio had a value of approx. EUR 6.8 billion at the end of January 2015, and the CA Immo portfolio was valued at approx. EUR 2.7 billion (based on preliminary figures at the end of 2014). More than two-thirds of IMMOFINANZ’s property assets are located in CEE (incl. Russia), while CA Immo’s investments are concentrated in Austria and Germany.
Why is IMMOFINANZ offering EUR 18.5 per CA Immo share? That is more than the company was prepared to pay in the previous year?
Because the market and framework conditions have changed. The share prices are higher, and last year we didn’t expect that other parties would actually be interested in purchasing the UniCredit investment in CA Immo. In addition, CA Immo is heavily invested in Austria and Germany – and the property values in these two markets are generally rising. “We are currently selling properties in Austria with a premium of up to 30% over fair value“, explained Zehetner on the sound demand from investors. The price of EUR 18.5 is also below the recently published NAV per CA Immo share.
Has IMMOFINANZ already acquired shares in CA Immo?
Does IMMOFINANZ need a shareholder's meeting for this step?
No. But we are convinced that our shareholders welcome that step - not only because the offered price is below NAV, but also because of the mentioned potential and synergies.
Is a merger planned?
Over the short- and medium-term, not really (because of the above-mentioned issues concerning the land transfer tax in Germany), but nothing can be excluded over the long-term. However, synergies can also be realised without a merger. “At the end of the day, the connections should be closer than full consolidation under IFRS. But that doesn’t necessarily mean a merger. There are a number of possibilities“, added Zehetner.