The long awaited takeover bid for Commonwealth Property Office Fund (CPA) finally has arrived. And the payoff for Commonwealth Bank (CBA) shareholders could be in the form of a special dividend.
The moment the Commonwealth Bank announced plans last July to exit management of the trust along with the CFS Retail Property Trust (CFX), it was an open invitation for takeover activity.
It took less than two days for Dexus to oblige (DXS), hoovering up 15% of the office fund; enough of a stake to thwart any rival offers while it scouted for a partner to help finance a deal.
It has enlisted the Canada Pension Plan Investment Board, a fund with a healthy appetite for Australian infrastructure having previously been involved in a tilt for toll roads group Transurban (TCL).
CBA's plan to internalise management of the two listed funds was more about conserving its capital under the new Basel III rules – which dictate increased buffers for equity investments – rather than realising a profit.
Freeing up that capital could deliver as much as 50 to 60c per share of capital, providing enough firepower for a special dividend.
Unlike the office trust, the retail trust is likely to be less attractive to suitors given the bank's proposal to bundle up its management rights to a series of unlisted trusts and sell them to the retail trust.
The office fund, with $3.7 billion of property, is valued at around $2.7 billion and the Commonwealth Bank will pick up tidy sum should the deal proceed, given it holds around 11% of the office fund and clearly wants out.
The cash and scrip offer from Dexus values the trust at $1.15 a unit, offering virtually no premium and marginally lower than yesterday's close.
CPA rose 2.2% shortly after the announcement, indicating investors believe Dexus will need to sweeten the offer.
CPA units were trading above $1.20 in May shortly before Ben Bernanke's musings on tapering America's massive stimulus program sent global markets into a tailspin. CPA units dropped to as low as $1 in the aftermath.