Acquisition Denied German Giants’ Real Estate Rivalry

Last year Germany's largest property manager failed to take over its leading competitor. The rivalry continues and rumors of more takeover bids keep coming.
Quelle: dpa
Real estate rivalry: Townhouses in Berlin are seen as premium property by managers.
(Source: dpa)

Two out of the three executive parking spaces in front of the Berlin headquarters of Germany’s second-biggest landlord, Deutsche Wohnen, stand empty this morning. The third space is occupied by a cement-gray Maserati Quattroporte. The horsepower-heavy sedan belongs to chief executive Michael Zahn. During an interview, he downplays the significance of his car and its 400-horsepower engine: After all, a 7-series BMW isn’t any cheaper.

Somehow Mr. Zahn’s car of choice cannot help but make one think also of his biggest business competitor, Vonovia chief executive Rolf Buch. He is known to roll up to the office in a tuned-up, S-Class Mercedes. It has a 600-horsepower engine.

But Mr. Zahn is quick to point out a further distinction between his car and Mr. Buch’s: “Horsepower isn’t all that significant for me,” he says, explaining why he chose his car. “I love Italian design.”

The rivalry between the two is highly entertaining. Two alpha males, prima donnas who, with their millions of euros in profits, compete passionately - and, in doing so, bungle each other’s plans.

The two managers are not giving one another an inch. But they have also developed a certain respect for one another.

About a year ago, for example, in spectacular fashion, Mr. Buch failed to acquire Deutsche Wohnen for €14 billion through a hostile takeover. During the months-long battle, Mr. Buch also prevented Mr. Zahn from merging Deutsche Wohnen with the Düsseldorf-based LEG, a move which might have resulted in Deutsche Wohnen growing to Vonovia’s size.

The dust had barely settled before Mr. Buch launched the next round of battle. In an interview with Handelsblatt's sister publication WirtschaftsWoche near the end of 2016, the Bochum-based instigator took another run in the direction of Berlin. He no longer wanted to “initiate a takeover against the will of management,” said the now apparently calm manager. But he was also “very much convinced” that another attempt at a merger would come, but this time from Deutsche Wohnen.

Mr. Zahn for his part was far from charmed by overtures from Bochum: “I don’t see it as compulsory,” he said, adding that he doesn’t believe “that an offer from Vonovia to the Deutsch Wohnen shareholders would be successful.”

But Mr. Zahn  is careful to leave a back door open for the possibility. In response to the question of whether he and Mr. Buch might agree to cooperate, Mr. Zahn said: “Our shareholders will decide on that if and when a concrete offer is presented.”

Could Vonovia and Deutsche Wohnen combine to become a kind of super landlord, with more than half a million apartments under their management?

By mid-2017, Conwert, a competitor Vonovia acquired, should be integrated into the company and Mr. Buch will control 358,000 apartments, spread wide over 660 cities. Nearly 70,000 Vonovia apartments are in Dortmund, Essen, Bochum, Duisburg and Gelsenkirchen, and 14,000 are in Kiel, so by no means the flashiest zip codes in the country. In real estate jargon, these kinds of places are known as “core retail real estate”: Good locations that offer stable, long-term rental cash flow but are not particularly glamorous.


The head of Deutsche Wohnen, Michael Zahn, does not like the idea of a takeover by Vonovia.

Meanwhile Deutsche Wohnen’s approach is slightly different. When it comes to prospects, “Berlin, Hamburg and Munich have more potential in the future than Dortmund, Hanover and Bochum,” Mr. Zahn says. And he defines his business model as such: “I’m really a fan of core-plus.”

Deutsche Wohnen leases two-thirds of its apartments right in the epicenter of the German real estate boom, Berlin. The rest of the company’s portfolio, which Mr. Zahn expanded to 165,000 apartments through additional acquisitions in February, is located in Frankfurt, another top location.

It took Mr. Zahn a long time to come up with an apt comparison for his rivalry with Mr. Buch. Is Vonovia the Volkswagen to Deutsche Wohnen’s BMW? For Mr. Zahn, it is: Deutsche Wohnen is a premium brand, while its competitor is just off-the-shelf.

In spite of the myriad differences in personalities and approaches between Mr. Zahn and Mr. Buch, they have enough in common to worry shareholders, renters and competitors. The bottom line is that Mr. Buch and Mr. Zahn are both trying to add luster to their respective businesses.

The two are peas in a pod in that they are not giving one another an inch. But they have also developed a certain respect for one another. Mr. Zahn, 53 years old with an annual income of €2.4 million, is an old hand in the sector. Two decades ago, he cut his teeth on a communal housing association, which he eventually turned into Deutsche Wohnen. He’s led the company from Berlin for the past 10 years and is a self-professed real estate nerd; eyes twinkling when he talks about historic properties his company owns.

Mr. Buch, whose annual income is higher, at €32.4 million, is cut from a different cloth. Mr. Buch, 51, grew up on the outskirts of Essen, in western Germany, the son of a manager at German industrial conglomerate Krupp. He only left a position at Bertelsmann-subsidiary Arvato, which specializes in customer support, information technology, logistics and finance, four years ago to become the Vonovia boss. So he is relatively new to the residential real estate sector.

But Mr. Zahn doesn’t have too much concern about his higher-earning competitor: “When I meet him, it’s always exciting and interesting. Today, I enjoy him as a colleague, strategist and discussion partner. We can learn something from one another.”

But Mr. Zahn can’t really do much to compete seriously with Mr. Buch. Given the size and value of Vonovia, a takeover plan coming from Deutsche Wohnen would be unrealistic – even more unrealistic than Mr. Zahn’s earlier attempt at a hostile takeover turned out to be.

“I am focused on things that I can influence and things that are in the interests of our shareholders,” Mr. Zahn said, making it clear he did not want to work under Mr. Buch anyway. “And our shareholders are happy with our clear focus on Berlin.”

Perhaps reassuring to both Mr. Zahn, his shareholders and renters alike is the idea that a merger - hostile or otherwise - has become even less likely over the past year. Since Vonovia’s failed attempt to take over Deutsche Wohnen, the value of shares in the latter  have increased by a solid €2 billion.

For Vonovia shareholders, who only narrowly approved Mr. Buch’s request for an increase in capital to acquire Deutsche Wohnen in the first place, another takeover bid would most likely be very difficult to accept.

Currently the market value of Deutsche Wohnen is around €11 billion, while Vonovia is at €15 billion. Ultimately, this makes Mr. Buch and Mr. Zahn, and the companies they manage, an unlikely couple.


This article first appeared in the German business weekly WirtschaftsWoche, a sister publication of Handelsblatt Global. To contact the author: [email protected]