GPT tipped to sweeten its CPA deal

GPT Group is expected this week to sweeten its $4 billion takeover proposal for the Commonwealth Property Office Fund, in the continuing bidding war with rival Dexus Property Group.

It was expected GPT could up the cash proportion of its offer, equal to the $1.27 per CPA share that is being offered by Dexus.

GPT closed at $3.43 on Friday, which would value its CPA cash/scrip offer at $1.23 per unit. Dexus closed up 3¢ to $1.02, valuing its CPA offer at $1.27. This comes as Dexus and the Commonwealth Bank signed a new management agreement late on Friday.

The original heads of agreement lapsed when GPT entered the fray last month. But the new "facilitation scheme", does not preclude GPT from offering a revised offer.

Under the deal that was released to the ASX at 10pm on Friday Dexus will pay the bank $41 million for the management rights of CPA "should the consortium [Dexus and the Canada Pension Plan Investment Board] win 50.1 per cent and assume management of CPA", the scheme says.

As part of the deal, the bank agrees to "assist Dexus to obtain the property and development management rights and associated fees in relation to QV Building, Melbourne and 5 Martin Place, Sydney". The bank will also receive its $41 million if it provides Dexus the right to purchase a range of properties in Sydney and Melbourne.

Dexus chief executive Darren Steinberg said he was pleased to have been able to negotiate an agreement with CBA to work co-operatively in relation to the handover of the management of CPA to Dexus.

"CBA has managed CPA for more than 13 years and this agreement provides the ability to access the considerable knowledge of CBA and its resources in the handover process, which will be invaluable in reducing risks for current and new Dexus security holders and facilitating a smooth and cost-efficient transfer for CPA unit holders," he said.

Dexus, which made its initial offer for CPA in October, only to be outbid by GPT in early November, upped its offer last Wednesday and changed it from a scheme of arrangement to an indicative off-market takeover with no minimum acceptance. GPT has a minimum acceptance of 50.1 per cent.

Mr Steinberg said he and his advisors would now re-enter discussions with CPA's independent manager, Commonwealth Investment Management Ltd, (CMIL), for the new offer. Mr Steinberg said Dexus would also exercise its option over 14.9 per cent of CPA equal to 35 million units.

The Dexus offer comprises a cash payment equal to 77.45¢; and 0.4516 Dexus stapled securities.

Since the offers are both a combination of cash and shares, investors are being asked to make a call on management, analysts said. Both companies hold a large office and industrial property portfolio.

John Kim at CLSA said the latest GPT bid was antagonistic, as GPT proposed to replace CMIL as the responsible entity after acquiring at least 50.1 per cent of CPA shares.

"GPT has made arrangements to acquire 6.5 per cent of CPA from two major CPA unit holders, but Dexus' 14.9 per cent stake remains a hurdle and may be used to carve out assets," Mr Kim said.

Strategically, CPA was a "better fit" for Dexus, he said.