Investors sell down FKP amid Stockland bid

It is the second foray into the sector for Stockland after it bought a 14.4 per cent interest on Monday in the smaller aged-care manager, Aevum, from investment house Babcock & Brown for $26.9 million.

Together the two deals will significantly elevate Stockland's exposure to the sector and give it leverage for more deals against its rival Lend Lease, which is trying to buy a 41 per cent holding in Babcock & Brown Communities.

Stockland raised $300 million last week through a rights issue to help fund its expansion into the retirement living market.

Under the latest deal, Stockland will buy an initial 5 per cent stake in FKP at $2 a security and will take up its full entitlement in a planned rights issue at $1.50 an FKP security. Stockland then has the option to buy further securities.

Stockland's managing director, Matthew Quinn, said yesterday that "as one of the largest participants in the Australian retirement living industry, FKP has built a quality portfolio of assets and has a strong development pipeline".

But FKP investors remained unimpressed and sold the shares down 24.5c, or 16.33 per cent, to $1.25. The cause of the concern was that in June, FKP revealed that it had been approached by Lend Lease with an unsolicited proposal to buy all of FKP for $5 a security.

"The FKP Board has considered the proposal and has unanimously agreed that the proposal substantially undervalues FKP," the chairman, Ben Macdonald, said.

"The [Lend Lease] proposal is opportunistic and does not reflect FKP's underlying value and future prospects. FKP is in a strong financial position and is set to deliver strong earnings growth from 2008-09 onwards."

Last month FKP scrapped its 10 per cent earnings growth forecast for this year and also warned yesterday of a cut in distributions to December 31.

Winston Sammut, director of Maxim Asset Management, said investor reaction to the falling FKP share price to well below the proposed capital raising price "is effectively a vote of no confidence in FKP's management and the board". That lack of confidence could deliver Stockland a "significant discount", he said.