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Inside Out: Schoenherr and Freshfields Advise on Vonovia Public Takeover Offer for BUWOG

Inside Out: Schoenherr and Freshfields Advise on Vonovia Public Takeover Offer for BUWOG

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On January 4, 2018 CEE Legal Matters reported that Schoenherr had advised BUWOG AG and Freshfields Bruckhaus Deringer had advised Vonovia SE on Vonovia’s voluntary public takeover bid of BUWOG. The takeover offer placed the enterprise value of BUWOG at around EUR 5.2 billion. We reached out to several of the individuals involved in the deal for information: Christian Herbst, Partner, Schoenherr and Thomas Zottl, Partner, Freshfields Bruckhaus Deringer 

CEELM: How did you each become involved in this matter?

Herbst: Schoenherr was mandated to advise BUWOG on this specific transaction. We understand from the client that BUWOG’s choice for this specific transaction was based on Schoenherr’s track record in public M&A and, specifically, the corporate M&A team’s expertise in high end takeover transactions as well as industry expertise. 

Zottl: Vonovia SE is a long-term client of Freshfields and we have been enjoying the cooperation with Vonovia both in their home country of Germany (initially as legal advisor for Vonovia’s unsolicited exchange offer for all shares in its competitor Deutsche Wohnen AG) and abroad. Following the successful takeover and integration of Conwert in 2016 and 2017, Vonovia built on the established relationship when looking at another Austrian target, BUWOG, and called us in for support. We were of course very happy about this call.

CEELM: What, exactly, was the initial mandate when you were retained for this project?

Herbst: We were brought on board in December 2017 by BUWOG in connection with a potential combination of Vonovia, a German-listed real estate group. We were tasked to assist BUWOG first in negotiating a so-called business combination agreement that may be followed by a public M&A transaction, if any. Our involvement in the matter was thus from the commencement of the specific takeover transaction in December 2017, which then resulted in the public offer by Vonovia for BUWOG launched at the beginning of February 2018.

Zottl: We were approached by Vonovia at an early stage of their internal evaluation process and commenced our work by supporting Vonovia on the feasibility review and in the initial planning phase of the transaction, working on project timelines and their structuring analysis.

CEELM: Who were the members of your team, and what were their individual responsibilities?

Herbst: The core members of the team were three: Robert Bachner, Sascha Schulz, and myself. Since we are all corporate M&A lawyers, we worked seamlessly as a team, with Sascha and me concentrating on the public M&A aspects and work stream. 

Zottl: The core team for the public takeover consisted of me, Ludwig Hartenau and Thomas Mollnhuber in Austria and Gregor von Bonin, Rick van Aerssen, Andreas Fabritius, and Timo Piller in Germany. Tax, Finance, and Antitrust lawyers in Germany and Austria supported Vonovia as well.

CEELM: Can you describe the final agreement for us?

Herbst: Following the announcement on December 18, 2017 regarding the successful negotiation and signing of the Business Combination Agreement between Vonovia and BUWOG, valuing BUWOG at EUR 5.2 billion enterprise value, Vonovia launched a voluntary public takeover bid on February 5, 2018. The takeover offer of February 5, 2018 represents a cash offer volume of EUR 3.6 billion taking into account potential newly issued shares from a conversion of the convertible bonds issued by BUWOG. The BUWOG Management Board and Supervisory Board support the offer. The Schoenherr team advised BUWOG’s Management Board in connection with the Business Combination Agreement and has been advising BUWOG as target company on all aspects of the public offer, which is still ongoing. The initial offer term will end on March 12, 2018, followed by an additional acceptance period of three months if the offer is successful. 

Zottl: The transaction is structured as a full all-cash takeover offer addressed to all shareholders and convertible bond holders of BUWOG. The BUWOG takeover offer is rather exceptional for Austrian circumstances as BUWOG’s shareholder base consists entirely of free float shareholders and does not include a controlling shareholder with whom Vonovia as potential bidder could have had a discussion prior to launching a bid in order to obtain control. Hence, unlike previous takeovers in Austria, Vonovia did not enter into an SPA or an irrevocable undertaking with a core shareholder. The deal documentation only consisted of a business combination agreement between Vonovia as bidder and BUWOG as target and the public offer document negotiated with the Austrian Takeover Commission which sets outs the terms of the offer to all shareholders and convertible bond holders of BUWOG.

CEELM: What was the most challenging or frustrating part of the process?

Herbst: The successful completion of the still-pending-since-the-takeover offer is subject to the statutory minimum acceptance threshold of 50 percent plus 1 share, the condition of antitrust clearance in Germany and Austria (obtained from filing), and other closing conditions set out in the offer documents. So, it will be clear in mid-March whether the Vonovia/BUWOG transaction has been successful. One of the most challenging aspects of the process was certainly the tight timeline under which the transaction was negotiated and the public offer was launched. BUWOG is one of the rare examples of a true free float company, since most other companies listed on the Vienna Stock Exchange have a controlling or dominating shareholder. In a “controlled” listed company, such controlling or dominating shareholder would play a key role in such transaction. In a free float company the dynamics are different with the management and supervisory boards of the target having a much stronger role in the process.

Zottl: The transaction ran rather smoothly and quickly. As this was a “friendly” transaction, Vonovia did not want to announce the takeover offer until it had agreed on the business combination agreement with BUWOG. BUWOG was approached on the weekend before Christmas 2017 and the business combination agreement was negotiated in the course of that weekend – which gave the parties only 60 hours to come to a deal, as Vonovia wanted to announce the deal no later than on the Monday morning immediately after the weekend. We were able to deliver on this extremely short timeline because Vonovia, we, and the financial advisers were very well-prepared and interacted seamlessly.

The legally tricky part was the fact that BUWOG had outstanding convertible bonds which could be converted into BUWOG shares at a preferred conversion rate following a change of control in BUWOG. Pursuant to Austrian takeover law, the convertible bonds needed to be part of the takeover offer. The price offered for such bonds must be adequately proportionate to the price offered for the shares. In general, Vonovia must offer the same prices (for each of shares and bonds) in the initial acceptance period of the offer as well as in the additional three-month acceptance period which is triggered if the offer is successful. To incentivize the bondholders to tender their bonds in the initial acceptance period, Vonovia offered a higher price for the convertible bonds in the initial acceptance period than in the additional acceptance period anticipating the preferred conversion rate following a change of control under the convertible bond’s terms & conditions. The price offered to bond holders in the additional acceptance period is based on the conversion rate prior to a change of control, which results in a lower price (even below nominal value), but the bondholders can convert and tender the shares received under the convertible into the offer at the offer price.

CEELM: Did the final result match your initial mandate, or did it change somehow from what was initially anticipated?

Herbst: Although the final result is still pending, our initial mandate did not change throughout the process and our expectations regarding our cooperation with BUWOG were met.

Zottl: So far, the entire transaction is running as initially envisaged.

CEELM: What individuals at your clients directed you, and how did you interact with them?  

Herbst: The Schoenherr team worked directly with the BUWOG board and general counsel, but also with other members of the BUWOG transaction team. The working relationship has been and is excellent and it is also fun to work closely together with highly competent individuals towards an ambitious goal. 

Zottl: Our main contact at Vonovia is Fabian Hess, the General Counsel. He is a very experienced transaction lawyer with excellent legal knowledge who always remains calm and has a very open style of communication. From our viewpoint, the working relationship is excellent – definitely one of the best clients to work for.

CEELM: How would you describe the working relationship with your counterparts at the other firms working on the deal? 

Herbst: The colleagues from Freshfields have been highly competent and extremely professional. The negotiations on the Business Combination Agreement were in person and intense but fair and friendly, since the transaction was structured as a friendly not hostile takeover. As is typical for such a transaction, the negotiations were conducted day and night over the weekend when stock markets were closed and needed to be finalized by Monday early morning. Following the signing of the Business Combination Agreement, and during Q1 2018, the Schoenherr and Freshfields teams worked mostly by phone and email towards the common goal; i.e., Freshfields assisted Vonovia in launching the public offer beginning February 2018 and obtaining regulatory clearances, and Schoenherr assisted BUWOG in supporting the offer and resolving any issues that came up along the way.

Zottl: Christian Herbst and Sascha Schulz are excellent lawyers and experienced in public M&A matters. It is always good to have them on the other side of the table. They always play with open cards and maintain a direct line of communication.

CEELM: How would you describe the significance of the deal?

Herbst: When completed, the deal will be one of the largest public M&A deals ever in the Austrian market. Moreover, public M&A transactions initiated by a business combination agreement, securing the support by target management of the following public offer of the bidder, are a recent development in Austria. The 2017/18 BUWOG/Vonovia transaction is only the second transaction structured in such a way.  

Zottl: This deal is indeed significant. Vonovia is listed in the DAX-30 and Germany’s leading nationwide residential real estate provider with approximately 350,000 residential units (worth approximately EUR 30.9 billion). BUWOG is headquartered in Vienna and has a triple listing on the Vienna, Frankfurt, and Warsaw stock exchanges. BUWOG is a large residential real estate company in Austria with approximately half of its portfolio in Austria and the other half in Germany. After the successful takeover of Conwert (another Austrian formerly listed-real estate company) in early 2016, Vonovia is set to become one of the biggest residential real estate providers in Austria. The offer is also the biggest all-cash takeover in Austria ever. 

This Article was originally published in Issue 5.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.