As Stockland’s top brass spent yesterday in an all-day board meeting, expectations are growing that the nation’s largest residential developer is reworking its $2.4 billion offer for Australand, possibly to include a cash component.
On Wednesday, Australand revealed it had spurned an all-scrip offer from its largest shareholder, Stockland, denying its rival’s request for access to undertake due diligence on the company.
Stockland has offered 1.111 of its shares for every Australand share. The offer is equivalent to $4.20 per Australand share, which represents an 18 per cent premium to the property trust’s net tangible assets.
Australand has a $2.4bn investment portfolio as well as a $767 million residential land bank and $287m of property under development.
Acquisition of Australand would fulfil Stockland’s aspirations of increasing its exposure to industrial property and medium density residential projects.
Stockland is also thought to have been holding meetings with its shareholders yesterday.
The company is sounding out investment partners for Australand’s $1.1bn prime office portfolio, with GPT’s suburban office fund and mid-tier office owner Cromwell mentioned as potential purchasers of the properties.
Stockland is understood to be open to partnering on specific residential projects owned by Australand. An investment partner would allow it to add a cash component to its bid, analysts said. But sources said a sweetened offer would probably be the last push by Stockland, which has threatened to sell its 19.9 per cent stake in Australand if price expectations become too high.
Stockland purchased the stake at an average of $3.78 per share, representing an outlay of $435m for the $8.7bn diversified property trust.
On an analyst call on Wednesday, Stockland chief executive Mark Steinert said the company could make a $60m-plus profit on the stake selling at today’s price — but few in the market believe it will be able to get the holding away at today’s price, and it could even book a loss on divesting its shares in Australand.
Its tilt follows rival GPT’s attempt to purchase Australand’s non-residential business in late 2012. That bid was also rejected by the Australand board.
Credit Suisse analyst John Richmond said he doubted Stockland’s ability to make a profit from selling its stake in Australand. “Their threat to sell down and realise profits of $60m ‘above the line’ appears ambitious given the situation and Australand’s liquidity,” he said.
“With Australand’s board unwilling to allow access at the proposed price and in the likely absence of competing bids, Stockland appears hopeful that Australand unit-holders may pressure Australand management to reconsider.”
A fund manager who declined to be named said the bottom could fall out of Australand’s share price if Stockland divested its stake.
Morningstar analyst Tony Sherlock said he would be concerned if Stockland raised its offer price ahead of performing due diligence on Australand.
“To raise the offer price in the absence of due diligence presents an unacceptable risk of value destruction of overpaying,” he said.
He said he struggled to see “merit” in Stockland paying a higher premium.
Stockland closed up 7c yesterday at $3.83. Australand closed up 3c at $4.26.