Brookfield bid for Thakral gets thumbs down

'You could add at least 10? to 15? [per security] to the Brookfield offer.' Simon Marais

By InvestSMART · 25 Apr 2012

By InvestSMART ·
25 Apr 2012

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THE independent directors of Thakral Holdings have informally advised shareholders to reject the $410 million takeover offer made by Canadian company Brookfield Asset Management late last week.

In issuing the advice, the newly formed committee of independent directors, including Albert Harris, Hugh Keller and Lim Swe Guan, said it was still reviewing the offer, which was made at a 30 per cent discount to the net tangible asset value.

Thakral's chief operating officer, Anthony Story, who is running the group after the retirement in December of John Hudson, said yesterday that subject to considering the views of independent experts, "the independent directors expect that they will recommend in the target's statement that Thakral security holders reject the Brookfield offer".

"The independent directors advise that Thakral security holders should take no action in relation to the Brookfield offer," Mr Story said.

Although not unexpected, the Brookfield offer pitched at 70? per security was still a surprise, given the Thakral net tangible asset value is 96?.

Investors said another plus to boost the price was the conditional approval Thakral has to redevelop its office and retail assets at Wynyard, valued at about $1.3 billion.

Thakral also owns the Menzies Hotel in Carrington Street, which will benefit from the proposed upgrade of the Wynyard railway station to form a walkway link to the $6 billion Barangaroo sites.

Brookfield had been mooted as a possible buyer of just the Wynyard area assets, but last year it secured a margin loan from the Government of Singapore Investment Corporation, which was covered by 38.6 per cent of the Thakral family's shares in Thakral Holdings. Once that loan is converted it will give Brookfield the stake with which to launch a takeover of the rest of the company and in return the Thakral family's debt will be resolved and it will be left with 4 per cent.

The other key shareholder is Allan Gray Australia, formerly Orbis Investments, with about 11 per cent. The group's managing director, Simon Marais, said: "These are all good income generating assets and would be attractive to any number of buyers so ... you could add at least 10? to 15? to the Brookfield offer price."

Maxim Asset Management's managing director, Winston Sammut, said he would reject the offer. "While the stock has been tightly held, the value to shareholders is over 90? ... so 70? is a cheap price. Now that Thakral has got conditional approval for Wynyard that value should start coming through."

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Frequently Asked Questions about this Article…

What was Brookfield Asset Management's takeover offer for Thakral Holdings?

Brookfield Asset Management lodged a A$410 million takeover offer for Thakral Holdings, pitched at about 70 cents per security — which the article says is roughly a 30% discount to Thakral’s net tangible asset value (NTA) of about 96 cents per security.

Why did Thakral’s independent directors advise shareholders to reject the Brookfield offer?

The newly formed committee of independent directors said the Brookfield offer was at a substantial discount to Thakral’s NTA and they were still reviewing expert advice. Subject to that review, they expected to recommend in the target’s statement that Thakral security holders reject the offer and advised holders to take no action in relation to the bid.

What key Thakral assets could make the company more valuable than Brookfield’s offer implies?

Investors pointed to conditional approval to redevelop Thakral’s office and retail assets at Wynyard (valued at about A$1.3 billion) and ownership of the Menzies Hotel on Carrington Street — which could benefit from the proposed Wynyard station upgrade and a walkway link to the A$6 billion Barangaroo sites. These assets were cited as reasons the company’s true value may be higher than the offer.

Could the Wynyard redevelopment and Barangaroo upgrade boost Thakral’s share price?

Yes. The article reports investors and fund managers saying the conditional approval for the Wynyard redevelopment and proximity to the Barangaroo upgrade should add value — with one manager suggesting at least a 10–15% uplift to the Brookfield offer price as that value is realised.

What role does the Government of Singapore Investment Corporation (GIC) margin loan play in Brookfield’s takeover plans?

Brookfield previously secured a margin loan from the Government of Singapore Investment Corporation that was covered by 38.6% of the Thakral family’s shares. The article says once that loan is converted it would give Brookfield a stake from which to launch a takeover of the rest of the company, while resolving the Thakral family’s debt and leaving the family with about 4%.

Who are the other major shareholders and what did they say about the offer?

Other major shareholders mentioned include the Thakral family (whose shares are tied to the GIC margin loan) and Allan Gray Australia (formerly Orbis) with about an 11% holding. Allan Gray’s managing director, Simon Marais, said Thakral’s income-generating assets would be attractive to buyers and could add value to the offer. Maxim Asset Management’s Winston Sammut said he would reject the offer, describing 70 cents as a cheap price given the company’s value.

Was Brookfield only interested in buying Thakral’s Wynyard assets?

The article says Brookfield had been mooted as a possible buyer of just the Wynyard area assets, but last year it secured the margin loan arrangement that could convert into a stake giving it the position to launch a takeover of the whole company. So while Wynyard was a focus, the financing move points to a broader takeover intent.

What immediate action did Thakral’s management recommend security holders take about the Brookfield offer?

Thakral’s chief operating officer, Anthony Story, said the independent directors advise that Thakral security holders should take no action in relation to the Brookfield offer, and that the directors expect to recommend rejection in the target’s statement after considering independent expert views.