The Dexus Property and Canadian Pension Plan Investment Board consortium has been forced to revise its $3.7 billion offer for the Commonwealth Property Office Fund (CPA) after the initial cash/scrip proposal was turned down by the independent directors.
In the first salvo, Dexus and CPPIB made an indicative cash and scrip offer for CPA, worth $1.15 a unit, comprised of 60 per cent cash and 40 per cent Dexus shares. CPA has a market value of $2.7 billion, with $1 billion of debt.
The move by the consortium to privatise the fund would give Dexus access to a high-quality portfolio of office towers throughout the country, and boost its assets under management to $8 billion.
But the independent board of CPA, Commonwealth Managed Investments Ltd (CMIL), chaired by Richard Haddock, said on Monday that after careful consideration, the "board has determined that the Dexus proposal does not provide a compelling value proposition for CPA unit holders. Consequently, we have advised the consortium that CMIL will not grant access to the due diligence material, nor progress the Dexus proposal at this time. Should the consortium decide to submit a revised proposal with improved terms, it will be considered on its merits."
Dexus already has an option over 14.9 per cent of CPA, which, together with stablemate CFS Retail Trust, are the last of the externally managed real estate investment trusts. CPA fund has an independent board, managed by CMIL, which is an associate of the ultimate owner, Commonwealth Bank.
The trigger for the takeover was pulled on July 24 when the CBA declared it wanted to internalise the management of CPA and CFS Retail.
There is speculation billionaire John Gandel may make a play for CFS Retail. He co-owns Melbourne's Chadstone mall with CFS and also holds a stake in the trust.
Dexus, whose chief executive Darren Steinberg previously ran the manager of the two trusts, declined to comment on the rejection.
Brokers said another bid from a third party was unlikely, but said it was plausible CPA shareholders could ask for a higher price.
CPA units closed at $1.19 on Monday.
CLSA analyst John Kim said a takeover of CPA would be good for Dexus. "Strategically, the transaction will cement Dexus as Sydney's leading core CBD office owner with a 26 per cent market share."