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TLG Immobilien Builds Aroundtown Stake, Opens Merger Talks

James Ludden and Jack Sidders

(Bloomberg) -- TLG Immobilien AG acquired nearly 10% of its larger German real estate rival Aroundtown AG and started talks to build one of Europe’s biggest property companies.

A tie-up would bring together the deal-making acumen of Aroundtown, which has grown rapidly through capital raising in recent years, with the development expertise of TLG. Combining TLG’s German offices, stores and hotels with Aroundtown’s 16.2 billion euros ($17.8 billion) of European commercial real estate would create the largest publicly traded landlord of its kind in Europe.

In addition to creating a “sector champion” with a combined 25.5 billion euros of assets, a merger could improve share liquidity and could lead to a potential inclusion in the DAX index that would lure new investors, JPMorgan Securities Plc analyst Tim Leckie wrote in a note to clients. A deal would also create savings and prevent rivals from scaling up through similar mergers, he wrote.

“We welcome working with Aroundtown toward a future merger of the two companies and creating one of the largest commercial real estate firms in Europe with a focus on top tier cities in Germany and the Netherlands,” Sascha Hettrich, chairman of TLG’s supervisory board, said in a statement on Sunday.

Stock Rally

TLG said the price values the potential target at 8.3 euros a share, or 10.2 billion euros. It’s paying a 10% premium to Aroundtown’s closing price on Friday. The stock has rallied about 15% since mid-August.

Aroundtown was trading up 2.5% at 10:45 a.m. in Frankfurt on Monday. TLG was down 1.3%.

TLG bought the stake from Aroundtown’s largest investor, Avisco, which has an option to sell another 4.99% holding, according to a company statement.

Aroundtown says it has a commercial property portfolio worth 16.2 billion euros. It also owns a stake in residential landlord Grand City Properties.

TLG’s biggest shareholder is Israeli real estate investor Amir Dayan, who built up a 27% stake via his Ouram Holding vehicle. Ouram said Sunday it still backs the company’s supervisory board.

Mall owner Unibail-Rodamco-Westfield is the largest publicly traded European landlord, followed by German residential companies Vonovia SE, and Deutsche Wohnen SE. TLG and Aroundtown would rank fourth in Europe by assets, if a merger is completed.

(Updates with analyst comment in third paragraph.)

--With assistance from Virginia Van Natta.

To contact the reporters on this story: James Ludden in New York at jludden@bloomberg.net;Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net, Patrick Henry, Andrew Blackman

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