2 Business Combinations

Acquisition of BUWOG

In connection with the voluntary public takeover offer that Vonovia SE made on December 18, 2017, to the shareholders of BUWOG AG, Vienna, Austria (BUWOG), a total of 82,844,967 shares had been tendered after the end of the acceptance deadline on March 12, 2018, at a price of € 29.05 per share. In addition, 2,988 BUWOG convertible bonds, which account for 99.6% of the total par value of the convertible bonds, were tendered at a price of € 115,753.65.

The acquisition date at which Vonovia SE obtained control of the BUWOG Group is March 26, 2018. This was the date on which the offer was settled. This transaction shall be treated as a business combination in accordance with IFRS 3.

The second extended tender phase in accordance with Section 19 (3) 3 of the Austrian Takeover Act (UebG) started on March 16, 2018, and ended at 5 p.m. CEST on June 18, 2018. With the conclusion of this second extended tender period, a further 15,281,786 shares were tendered to Vonovia. Furthermore, the 2,988 convertible bonds that were tendered during the first tender period, in addition to ten that were tendered in the second tender period, were converted into 11,904,382 shares. Since the acquisition of shares and the conversion were effected under exactly the same conditions as in the first acceptance deadline and were related in terms of content and timing, a linked transaction can be assumed. Taking the second acceptance period into account along with the 550,000 shares acquired on the market as of March 26, 2018, Vonovia possessed 89.1% of the share capital of BUWOG as of the acquisition date.

As of June 30, 2018, Vonovia acquired another 2,091,517 shares on the market, which was nevertheless presented as a separate purchase since the price was below the tender price. Overall, Vonovia thus possessed more than 90.7% of the share capital of BUWOG as of June 30, 2018. On June 20, 2018, Vonovia requested a squeeze-out process according to the Austrian Act on the Squeeze-out of Minority Shareholders (Gesellschafterausschlussgesetz) to be held at the next ordinary General Meeting.

The provisional consideration comprises the following:

in € billion

 

 

 

 

 

Net cash purchase price component

 

2.9

Convertible bonds

 

0.3

Total consideration

 

3.2

The provisional allocation of the total purchase price to the acquired assets and liabilities (PPA) of the BUWOG Group as of the date of first-time consolidation is based on the updated quarterly figures of BUWOG as of January 31, 2018, and on the adjustments to the fair values of the assets and liabilities that are necessary according to currently available information.

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

in € billion

 

 

 

 

 

Investment properties

 

4.6

Cash and cash equivalents

 

0.3

Real estate inventories

 

0.3

Trade receivables

 

0.2

Fair value of other assets

 

0.1

Total assets

 

5.5

Non-controlling interests

 

0.3

Non-derivative financial liabilities

 

1.9

Deferred tax liabilities

 

0.3

Fair value of other liabilities

 

0.5

Total liabilities

 

3.0

Fair value net assets

 

2.5

Consideration

 

3.2

Goodwill

 

0.7

The goodwill represents synergies from the future integration of the BUWOG Group, in particular by way of the joint administration and management of the German and Austrian housing units, the further modernization of the portfolio, the expansion of the value chain and the optimization of cost structures.

Since April 2018, the BUWOG Group has recognized income from property management in the amount of € 82.7 million and as an earnings contribution in terms of earnings before adjustments of investment properties, interest, taxes, depreciation and amortization (EBITDA IFRS) of € 40.7 million. If the BUWOG Group had already been fully included in the consolidated Group as of January 1, 2018, it would have contributed to the income from property management in the amount of € 166.0 million and to EBITDA IFRS in the amount of € 71.4 million.

Out of the trade receivables that were acquired, an amount of € 5.1 million is likely to have been uncollectible at the time of acquisition. The gross amount of the acquired trade receivables was € 162.8 million. The net carrying amount, which corresponds to the fair value, was € 157.7 million.

In the 2018 fiscal year, transaction costs related to the acquisition of the BUWOG Group of € 25.0 million have been recognized with effect on net income, with € 19.0 million recognized in other operating expenses and € 6.0 million in financial expenses.

A total of 89 domestic and 39 foreign companies of the BUWOG Group will be newly included in the scope of consolidation as of the date of acquisition.

Acquisition of Victoria Park

In connection with the voluntary public takeover offer that Vonovia SE made on May 3, 2018, via its subsidiary Deutsche Annington Acquisition Holding GmbH (DA Acquisition) to the shareholders of Victoria Park AB (publ), Malmö, Sweden (Victoria Park), a total of 34,056,463 class A shares, 97,962,486 class B shares and 663,172 preference shares had been tendered after the end of the acceptance deadline on June 18, 2018. The offer price for class A and class B shares was SEK 38.00, and for preference shares SEK 316.00.

Furthermore, call options were granted to DA Acquisition by the shareholders that allow Vonovia to purchase 10,235,198 class A shares and 14,264,946 class B shares in Victoria Park (call option shares) between May 15 and May 29, 2019. Including the shares tendered as of June 18, 2018, this corresponds to approximately 63.8% of the share capital and 58.7% of all voting rights in Victoria Park (on a fully diluted basis).

Although Vonovia has less than 50% of the voting rights as of June 30, 2018, in accordance with IFRS 10.B41–B43, de facto control must be assumed, since it holds a majority of votes present at the Annual General Meeting.

The acquisition date at which Vonovia SE obtained control of the Victoria Park Group is June 28, 2018. This was the date on which the offer was settled. This transaction shall be treated as a business combination in accordance with IFRS 3.

On June 18, 2018, DA Acquisition Holding GmbH announced that it would extend the offer period until July 3, 2018, at 5 p.m. (CEST) in order to give shareholders who had not accepted the offer the possibility of doing so. The settlement of the offer for shares tendered during the extended acceptance deadline through June 25, 2018, occurred on July 3, 2018. For shares that were tendered in the extended acceptance deadline after June 25, 2018, the settlement occurred on July 11, 2018.

The provisional consideration comprises the following:

in € billion

 

 

 

 

 

Cash and cash equivalents

 

0.5

Purchase price liability from call option shares

 

0.1

Put option

 

0.3

Consideration for the acquisition of shares

 

0.9

The provisional allocation of the total purchase price to the acquired assets and liabilities (PPA) of the Victoria Park Group as of the date of first-time consolidation is based on the quarterly figures of Victoria Park as of June 30, 2018, and on the adjustments to the fair values of the acquired assets and liabilities that are necessary according to currently available information.

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

in € billion

 

 

 

 

 

Investment properties

 

1.6

Cash and cash equivalents

 

0.1

Total assets

 

1.7

Non-derivative financial liabilities

 

0.9

Deferred tax liabilities

 

0.1

Fair value of other liabilities

 

0.1

Total liabilities

 

1.1

Fair value net assets

 

0.6

Consideration

 

0.9

Goodwill

 

0.3

Goodwill represents benefits from the future cooperation between Victoria Park and Vonovia through the partial transfer of Vonovia’s business strategy, in particular regarding its property and portfolio management strategy for the administration and management of the housing units, the utilization of Vonovia’s modernization process know-how to further modernize the portfolio and the value-add strategy with a focus on expanding the value chain.

If the Victoria Park Group had already been fully included in the consolidated Group as of January 1, 2018, it would have contributed to the income from property management in the amount of € 54.9 million and to EBITDA IFRS in the amount of € 24.2 million.

Out of the trade receivables that were acquired, an amount of € 0.9 million is likely to have been uncollectible at the time of acquisition. The gross amount of the acquired trade receivables was € 3.3 million. The net carrying amount, which corresponds to the fair value, was € 2.4 million.

In the 2018 fiscal year, transaction costs related to the acquisition of Victoria Park Group in the amount of € 11.8 million were recognized in other operating expenses affecting net income.

A total of 71 foreign companies, two of which are valued using the equity method, will be newly included in the scope of consolidation as of the date of acquisition.

Fair Value
Valuation pursuant to IAS 40 in conjunction with IFRS 13. The estimated value of an asset. The fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.