Aevum board gives grudging nod to Stockland's revised offer

AFTER a drawn-out battle, the directors of the retirement home developer and manager Aevum Ltd have grudgingly recommended acceptance of a $268 million takeover offer from Stockland, after a revised bid was declared "not fair but reasonable".

By InvestSMART · 21 Sep 2010

By InvestSMART ·
21 Sep 2010

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If Stockland wins control, after the offer officially ends on September 30, it will become a force in the NSW and Victorian retirement home markets.

In a late notice yesterday to the ASX, the Aevum chairman, Graham Lenzner, said that in the board's view, "the decision as to whether or not to accept Stockland's revised offer is finely balanced".

"On balance and after careful consideration of Stockland's revised offer ... your board unanimously recommends that shareholders with a short- to-medium-term investment horizon accept Stockland's revised offer in the absence of a superior proposal," Mr Lenzner said.

Stockland had initially offered $1.50 an Aevum share, which was soundly rejected. Aevum's independent adviser, Lonergan Edwards & Associates, recommended a valuation range of $1.91 to $2.22, with a mid-point value of $2.07.

Last week Stockland bowed to pressure and increased the offer to $1.80 an Aevum share, comprising $1.77 a share plus the company's latest 3? final dividend.

But Mr Lenzner made it clear yesterday that the board did not believe that Stockland's revised offer recognised the full underlying value of Aevum and its future opportunities. Nor did it adequately reflect the strategic value that Aevum could deliver to Stockland Group's retirement division, the company claimed.

Analysts said the decision to recommend the offer also ruled out Aevum's hopes that a superior bid would emerge from another party.

In an updated report prepared by Lonergan Edwards and Associates, which was asked to consider the value of the increased offer, the independent adviser concluded there were certain risks if Stockland achieved effective control of Aevum but with less than 90 per cent.

"Aevum's share price could fall by about 25 per cent in the short term once Stockland's revised offer lapses, assuming similar stock market conditions to present and no alternative offer being received," it said.

Aevum shares closed unchanged at $1.80.

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Frequently Asked Questions about this Article…

What is the Stockland takeover offer for Aevum and has Aevum’s board recommended it?

Stockland lodged a $268 million takeover offer for retirement-home developer Aevum. After a drawn-out process the Aevum board grudgingly recommended shareholders accept Stockland’s revised offer of $1.80 a share for those with a short- to medium-term investment horizon, saying the decision was "finely balanced" and recommending acceptance in the absence of a superior proposal. The offer officially ends on September 30.

How did the Aevum board describe Stockland’s revised offer and why was their recommendation cautious?

Aevum’s chairman, Graham Lenzner, said the board found the decision "finely balanced." While the board unanimously recommended shareholders accept the revised offer for short- to medium-term investors if no better bid emerges, it also said the offer did not recognise Aevum’s full underlying value or the strategic value Aevum could deliver to Stockland’s retirement division.

What were the terms of Stockland’s revised $1.80 per share offer?

Stockland increased its bid to $1.80 per Aevum share. The revised offer was structured as $1.77 cash per share plus Aevum’s latest final dividend, which together bring the total to $1.80. Stockland’s original offer had been $1.50 a share and was previously rejected.

What valuation range did Aevum’s independent adviser provide and how does that compare with the offer?

Aevum’s independent adviser, Lonergan Edwards & Associates, recommended a valuation range of $1.91 to $2.22 per share, with a mid-point valuation of $2.07. That range sits above Stockland’s revised $1.80 offer, which is one reason the board felt the bid did not fully recognise Aevum’s value.

What risks did Lonergan Edwards identify if Stockland gains control of Aevum with less than 90% ownership?

In an updated report Lonergan Edwards warned there were specific risks if Stockland achieved effective control of Aevum but with less than 90% ownership. The adviser noted this scenario could create uncertainties for the company and its remaining shareholders.

How might Aevum’s share price react if the revised Stockland offer lapses?

Lonergan Edwards cautioned that Aevum’s share price could fall by about 25% in the short term if Stockland’s revised offer lapses, assuming similar stock-market conditions and no alternative offer being received. At the time of the report Aevum shares closed unchanged at $1.80.

If Stockland wins control of Aevum, what would that mean for the retirement home market?

The article notes that if Stockland wins control after the offer closes, it would become a force in the New South Wales and Victorian retirement home markets, strengthening Stockland Group’s presence in those regions.

What should everyday Aevum shareholders consider before deciding whether to accept Stockland’s revised offer?

Shareholders should weigh the board’s unanimous recommendation for those with a short- to medium-term horizon, the independent adviser’s valuation range ($1.91–$2.22 with a $2.07 midpoint), the board’s view that the offer doesn’t fully reflect strategic value, the adviser’s warnings about risks if control is achieved with under 90% ownership, the possibility of a short-term share-price fall if the offer lapses, and the offer deadline of September 30. The board’s recommendation applies in the absence of a superior proposal.