Alstria Office REIT offered to buy competitor Deutsche Office AG in a deal that values the company at about €800m. Majority shareholder Oaktree Capital has accepted the bid.
Alstria offered 0.381 of a new bearer share for each Deutsche Office share, according to a statement. The bid is equal to €4.41 per share, 12pc above the company's closing share price..
The deal will consolidate Alstria's position as Germany's biggest office company, with a combined market value of €1.7bn. It would add Deutche Office properties in Frankurt -- with tenants including Allianz and Deutsche Telekom -- to Alstria's holdings in and around Hamburg, Dusseldorf and Suttgart.
The offer must be approved by investors holding 69.6pc of Deutsche Office shares. Oaktree owns about 60pc.
"The takeover of Deutsche Office is the right step for Alstria at this point to create a strong office player in Germany," said Baader-Helvea analyst Andre Remke in a research note. The merger will probably succeed given Oaktree's consent, he added.
Deutsche Office gained as much as 9.2pc in Frankfurt trading. The shares were up 8.5pc, valuing the company at about €773m.
The acquisition will lift Alstria's funds from operations to 75 cents a share in 2015, Alstria Chief Executive Officer Olivier Elamine said on a conference call with analysts. The company had previously forecast 62 cents.
German office investments are at the highest level since 2007, as buyers seek to benefit from the country's growing economy and stable rental income. Spending last year rose 26pc from 2013 to 17 billion euros, according to data compiled by BNP Paribas Real Estate.
The demand has buoyed commercial property stocks, lifting Alstria by 27pc in the past year. Alstria shares were down 1pc in Frankfurt trading.
Alstria is sticking with its plan to pay a dividend of 50 cents per share this year and the payout may increase as the acquisition begins to boost profits, Elamine said.
While the deal will boost Alstria's loan-to-value ratio to about 50pc from 46pc now, the company aims to bring the level down to about 40pc in coming years, Chief Financial Officer Alexander Dexne said.The company expects to save €15m a year from reduced financing expenses and another €2.5m after combining administrative costs.
The offer period will start at the end of August, Alstria said in a presentation on its website. (Bloomberg)