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Former foes find common ground: A look inside the planned CA Immo, IMMOFINANZ merger

and may have spent muchof 2015 locked in a bitter takeover battle, with each company trying to buy stakesin the other. But the pair decided in April to go with a more peaceful approach:IMMOFINANZ bought a 26%stake in its competitor for €604 million, paving the way for a full takeover.

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Witha mega-merger on the horizon, S&P Global Market Intelligence takes a look atwhat a new, enlarged company would look like, and how CA Immo's portfolio wouldcomplement that of IMMOFINANZ.

The twocompanies have a high level of overlap in terms of geographical exposure, with bothowning assets in Germany, Austria, Poland and Slovenia, among other countries. Germanyis the one place where the merger would significantly bulk up IMMOFINANZ's existingportfolio.

CA Immohas 22 properties in Germany compared to IMMOFINANZ, which has five. This includesa joint venture with PATRIZIA ImmobilienAG to develop the BaumkirchenMitte district in Munich into residential properties and offices, andthe fully owned Ambigonbuilding, also in Munich, which features retail and a medical center.

A glanceat the map shows up a problem area for IMMOFINANZ: unlike CA Immo, it has exposureto Russia, which appears to be the weak link in its portfolio. The company ownsland parcels and a retailportfolio, and said back in March that it is mulling over for a spinoff or sale. Rentreductions in Moscow and negative effects from the foreign exchange-adjusted valuationof the Russian properties were partly responsible for IMMOFINANZ's net loss of €146.1million for the first three quarters of 2015/2016.

As , another questionis the basis on which the two companies will agree to the merger. Will they lookat cash flow, or will they look at NAV? Although these are not necessarily the exactfigures that the companies might take into account when making the decision, SNLdata provides a rough idea of how the two companies compare. Per SNL data,CA Immo reported NAV per share of €21.90 with 96.8 million common shares outstandingas of Dec. 31, 2015, resulting in total NAV of €2.12 billion. IMMOFINANZ reportedNAV per share of €3.73 with 976 million shares outstanding as of Oct. 31, 2015,resulting in total NAV of €3.64 billion. Therefore, in a merger based on NAV, IMMOFINANZwould have a 63.2% share in the new entity.

On the income side, CA Immo reported cash from operating activitiesof €58.8 million as of Dec. 31, 2015, while IMMOFINANZ reported cash flow from operatingactivities of €83.6 million as of Oct. 31, 2015. Cash flow from operating activitiesis 2.8% of total NAV for CA Immo AG and 2.3% of total NAV for IMMOFINANZ AG.

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