2 Scope of Consolidation and Business Combinations

Acquisition of conwert Immobilien Invest SE

In connection with the voluntary public takeover offer that Vonovia SE made on November 17, 2016, to the shareholders of conwert Immobilien Invest SE, Vienna (conwert), a total of 72,902,498 or 71.54 % of the shares had been tendered after the end of the acceptance deadline on December 19, 2016; 682,852 of which were tendered as part of an alternative exchange offer. This corresponds to 339,135 new Vonovia shares to be created.

The acquisition date, the time at which Vonovia SE obtained control of the conwert Group, was January 10, 2017. Vonovia SE’s non-cash capital increase, using authorized capital, was entered in the commercial register of Düsseldorf Local Court on this day, and was formulated as a suspensive condition of the takeover offer. This transaction shall be treated as a business combination in accordance with IFRS 3.

Pursuant to Section 19 (3) UebG, the acceptance deadline was extended by three months, starting at the time the result was announced, namely until March 23, 2017 (grace period), for those shareholders who had not yet accepted the offer. The conwert shareholders who wanted to accept this offer were given the option, as with the first tender period, to choose between a cash offer (payment of the cash purchase price of € 16.16 per share in conwert) and an alternative exchange offer (74 shares in Vonovia for every 149 shares in conwert). The extended acceptance period ended on March 23, 2017, with a further 21,965,224 shares in conwert being tendered. 4,947,554 shares were tendered in exchange for shares in Vonovia. This corresponds to 2,457,177 new Vonovia shares to be created. The capital increase was entered in the Commercial Register on March 31, 2017. This is a transaction that is linked to the actual share purchase (linked transaction). This means that the result of the grace period has to be taken into account when allocating the purchase price as of the acquisition date in respect of the consideration transferred and the resulting goodwill.

The consideration transferred for the acquisition of 93.09 % of the shares in the share capital of the conwert Group in total comprises the following:

in € billion

 

 

 

 

 

Net cash purchase price component

 

1.44

Equity instruments

 

0.09

Total consideration

 

1.53

As part of the first tender, the share-based component relates to 339,135 no-par value shares from the non-cash capital increase of Vonovia SE, which were exchanged by Vonovia SE for the conwert shares. This share-based component was valued at the XETRA closing price of € 31.48 per share on January 10, 2017, and amounts to € 10.7 million.

As part of the extended tender, the share-based component relates to 2,457,177 no-par value shares from the non-cash capital increase of Vonovia SE, which were exchanged by Vonovia SE for the conwert shares. This share-based component was valued at the XETRA closing price of € 32.59 per share on March 23, 2017, and amounts to € 80.1 million.

The provisional allocation of the total purchase price to the acquired assets and liabilities (PPA) of the conwert Group as of the date of first-time consolidation is based on a preliminary external valuation report that was commissioned for this purpose to calculate the fair values of these assets and liabilities.

The assets and liabilities assumed in the course of the business combination had the following provisional fair values as of the date of first-time consolidation:

in € billion

 

 

 

 

 

Investment properties

 

2.47

Cash and cash equivalents

 

0.03

Assets held for sale

 

0.35

Fair value of other assets

 

0.15

Total assets

 

3.00

Non-controlling interests

 

0.13

Non-derivative financial liabilities

 

1.23

Deferred tax liabilities

 

0.16

Fair value of other liabilities

 

0.16

Total liabilities

 

1.68

Fair value net assets

 

1.32

Consideration

 

1.53

Goodwill

 

0.21

The goodwill represents synergies from the future integration of the conwert Group.

Out of the trade receivables that were acquired, an amount of € 19.8 million is likely to have been uncollectible at the time of acquisition. The gross amount of the acquired trade receivables was € 110.7 million. The net carrying amount, which corresponds to the fair value, was € 90.9 million.

Since January 2017, the conwert Group has recognized income from property management in the amount of € 94.9 million, as well as an earnings contribution in terms of earnings before fair value adjustments of investment properties, interest, taxes, depreciation and amortization (EBITDA IFRS) of € 45.1 million, which are already reflected in Vonovia’s consolidated financial statements in accordance with the IFRS.

Transaction costs of € 4.7 million have been incurred in the 2017 fiscal year, with € 3.0 million recognized as other operating expenses. In addition, other transaction costs in connection with the capital increase were offset against the capital reserves outside profit or loss, taking deferred taxes into account.

A total of 118 domestic and 90 foreign companies of the conwert Group will be newly included in the scope of consolidation as of the date of acquisition.