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FRANKFURT (Reuters) - Deutsche Wohnen (DWNG.DE) offered to buy rival property group GSW Immobilien GIBG.DE for 1.75 billion euros ($2.3 billion) to expand in Berlin's booming real-estate market, as a tentative pick-up in Europe's economy attracts international investors.
Deutsche Wohnen plans to fund the bid, which would be the second-biggest residential real estate deal in Germany in the past five years, by issuing 135 million new shares.
The group said on Tuesday it would offer 51 of its shares for every 20 shares in GSW, which would give GSW investors around 43 percent of the enlarged company.
Deutsche Wohnen said the offer represented a premium of 15.4 percent over the volume-weighted average share price of GSW over the past three months.
GSW said it would study the offer before deciding how to proceed.
In a sign that the European market is becoming attractive after years of crisis that hammered property values, sources told Reuters on Monday that the real estate arm of Blackstone (BX.N), one of the world's biggest hedge fund investors, was targeting up to $5 billion for a new fund that would invest in the region.
Last week, second-quarter growth data showed the euro zone was emerging from a 1-1/2 year recession, with the economies of both Germany and France expanding faster than expected.
The deal would bring Deutsche Wohnen's portfolio of flats to 147,000, with 108,000 of these in Berlin, where rents surged 40 percent between 2007 and 2012, according to research institute Empirica. Deutsche Annington ANNGn.DE, Germany's largest real estate firm, has 179,000 apartments.
"The offer is attractive at current share prices and the combination makes sense as Deutsche Wohnen is the company best placed to benefit from a Berlin-based portfolio," said Georg Kanders, an analyst at Bankhaus Lampe.
In April, a consortium led by German real estate firm Patrizia (P1ZGn.DE) scooped up GBW GWBG.MU for 2.45 billion euros including debt.
Shares in GSW were up 7.9 percent at 33.94 euros at 0634 ET, while Deutsche Wohnen stock was trading 3.5 percent lower at 13.67 euros.
The bid comes at a time of upheaval in the top ranks of GSW. Just a few weeks ago the firm's chief executive and supervisory board chairman were forced to step down. The departures came after a shareholder revolt spearheaded by Dutch pension fund PGGM.
Despite GSW's troubles, the company trades at higher multiples than its suitor.
GSW's enterprise value is 21.1 times its earnings before interest, taxes, depreciation and amortization (EBITDA), compared with 18.9 times for Deutsche Wohnen, according to Thomson Reuters StarMine.
Under the proposed deal Deutsche Wohnen, which has net debt of 3 billion euros, would take on 1.8 billion euros in net debt from GSW.
Deutsche Wohnen said the deal is contingent upon receiving a minimum 75 percent acceptance level among GSW's shareholders and backing from its own shareholders for the capital increase at an extraordinary general meeting on September 30.
It expects roughly 25 million euros in annual savings after the integration is complete.
Editing by Noah Barkin and Erica Billingham