THE independent directors of the Commonwealth Property Office Fund have rejected a $3 billion takeover bid from GPT Group in favour of a higher bid from Dexus Property Group and Canada Pension Plan Investment Board.
They said GPT’s bid for the office fund, which is known as CPA and owns a $3.9bn portfolio of office assets, could trigger a series of defaults on the target trust’s debts and see it lose control of some key properties as it sought to take control of the vehicle.
The target’s statement warned that changing CPA’s responsible entity could mean an “event of default” could occur under the trust’s US Private Placement, allowing holders to demand early payment of about $185.8 million. This could also occur with the trust’s $200m convertible notes, allowing holders to convert them to CPA units or seek early redemption.
Under CPA’s two bank facilities of $302m and $200m an event of default or review event occurs if there is a change in the responsible entity, allowing lenders to accelerate their facilities, potentially requiring repayment.
Dexus has dealt with these risks by striking a $41m deal with the Commonwealth Bank to pay for the trust’s management under which the bank will help it take control of CPA. But GPT has so far refused to engage with the bank.
In the target’s statement, the independent directors of Commonwealth Managed Investments advised by investment bank UBS, unanimously recommended CPA unit holders reject GPT’s offer.
GPT made a surprise off-market offer of 0.141 GPT securities for all CPA units, and 75.3525 cents — reduced by the amount of any distribution paid by CPA — on November 19. The rival, sweetened bid followed from Dexus-CPPIB and included a cash payment of 77.45c and 0.4516 Dexus securities.
On a comparative basis, that takes into account a CPA distribution and share price moves, the independent directors valued the Dexus offer at $1.246 per CPA unit and the GPT offer at $1.203.
CMIL chairman Richard Haddock said the group’s independent directors would issue another target’s statement recommending shareholders accept the Dexus offer, in the absence of a superior proposal, in January. The independent directors noted the Dexus offer was not subject to a minimum acceptance condition and said this meant it provided CPA unit holders with more certainty.
GPT’s offer is subject to it gaining a 50.1 per cent stake in CPA. Once it gets to this level GPT plans to change CPA’s responsible entity, though it is expected to have difficulty getting to the 90 per cent required to privatise the target trust as Dexus has a 25.2 per cent stake, including Commonwealth Bank’s overall 10.17 per cent interest.
Changing responsible entity could mean the co-owner may require CPA to sell its interest in their properties — 180-222 Lonsdale Street and 2 Southbank Boulevard, Melbourne and 201-207 Kent Street, Sydney on the open market. For two other assets that CPA co-owns, 54-58 Mounts Bay Road, Perth, and 5 Martin Place, Sydney, the co-owner may activate pre-emptive rights requiring the fund to offer its interest.
This month it emerged that Commonwealth Bank could also exercise rights of first refusal over CPA assets where it is a tenant.
These include 101 and 150 George Street Parramatta and 5 Martin Place, which is co-owned with Cbus, and two bank-occupied properties co-owned with Dexus at Sydney Olympic Park.
Source: The Australian
