The Distillery: GPT pluck

Scribes are surprised by a smart CPA bid from GPT, and one notes it’s a departure from Michael Cameron’s easy-does-it approach.

GPT Group’s takeover bid for the Commonwealth Property Office Fund (CPA) caught the market off-guard yesterday, with many believing the Dexus Property Group-Canada Pension Plan Investment Board bid would go unopposed. GPT had other ideas, however, and its move has the commentariat expecting more bids in coming weeks.

One scribe labels the GPT proposal as the first “really aggressive play” of Michael Cameron’s tenure as chief executive, while another notes that shareholders will be hoping for more restraint than that seen in the frantic race for Warrnambool Cheese and Butter.

Meanwhile, political tension between Indonesia is threatening to erupt, potentially putting Australia’s important trade ties with the southeast Asian nation at risk.

The sudden battle for control of CPA, however, draws the most interest form jotters. The Australian’s John Durie is among those to label the bid “smart” and believes it to be “well timed and structured.” However, Cameron may have left his loyal followers jolted by the bid, which represents a departure from his slow and steady approach since assuming the top job in 2009.

“When Cameron talked up the fact that with CPA under his wing he would be the nation's biggest office owner, his followers would have cringed because that's not the talk you'd expect from him. He has spent four years carefully nursing GPT back to fighting strength, winning unit-holder support in the process by being disciplined, not grabbing bulk for bulk's sake.”

Despite this, the current takeover battle is far from the “lunacy on display” with the fight for WCB, Durie contends. Shareholders of both GPT and Dexus would be happy with a victory provided the offers don’t stray far from the current proposals in front of CPA.

The Herald Sun’s Terry McCrann agrees, with property M&A a far more subtle event than the race to feed Asia.

“Now it remains to be seen whether Cameron can succeed. The margin of GPT's offer over Dexus is small. That's the unavoidable reality of property investment; we are not going to see crazy strategic bidding like with Warrnambool Cheese. It might end up being necessary for GPT and Dexus to share the spoils.”

Business Spectator’s Stephen Bartholomeusz also looks ahead to the likely process from here and argues that each party will be desperate to trump the other. After all, once a company steps up to the bidding table, it’s always difficult to leave empty-handed.

“Because the bidding for CPA is now contested, there is the potential for further developments in the bidding, although the Dexus-Canada Pension Plan Investment Board offer has already been increased once to win CPA’s endorsement. Having made his big move, however, Cameron will be reluctant to walk away from it.”

There is a lot at stake with the victor to become the largest office property owner in the country.

Still, Cameron’s move may be a little risky, according to the Australian Financial Review’s Chanticleer columnist, Tony Boyd. The property group will be hoping it can get access to Dexus’ 15 per cent shareholding in CPA or else it risks getting stuck with too much debt, in Boyd’s opinion.

“The debt on the GPT balance sheet will rise by $1.1 billion if GPT gets caught holding a stake between 50.1 per cent and 90 per cent. That could put its A minus credit rating at risk. However, GPT is comfortable with having to carry more leverage if it has to. But its firm belief is that Dexus and CPPIB will not want to get stuck in an illiquid investment.”

It is always dangerous to second-guess the likely moves of an opposing suitor, though Dexus would have little to gain by retaining its stake should CPA opt for the GPT proposal.

In politics, the Abbott government has further strained relations with Indonesia after refusing to apologise for spying. The criticism from usually reserved Indonesian President Susilo Bambang Yudhoyono “is a grave development” and a sign the relationship could get worse before it gets better, according to The Australian’s foreign affairs editor Greg Sheridan.

“This is an extremely serious problem now in a relationship of supreme importance to Australia. Abbott's stand is logical and reasonable, but I'm not sure if he got the tone just right – though this is a problem from hell and there may simply be no right tone.”

Given Australia’s trade ties with Indonesia, there is a lot riding on good relations between the two countries and the current fracture does not bode well.

However, while the relationship is very important, Sheridan’s colleague Paul Kelly wonders just how crucial it is in the prime minister’s opinion.

“There is … a core contradiction in Abbott's position. He keeps saying he sees Indonesia as "the most important single relationship" Australia has with any country. The truth is different. In terms of strategy, intelligence and institutional trust the Australian system does not accord Indonesia this status.”

Last year, Australia’s trade with Indonesia was worth close to $15 billion. And with this, and Abbott’s crucial boats policy, on the line to an extent, the AFR’s Laura Tingle goes as far as to say Tony Abbott has taken a “very big gamble” with the results to be “the first big test of his prime ministerial judgement”.

In company news, Fairfax’s Elizabeth Knight labels the Australian Competition and Consumer Commission investigation into allegations Crown boss James Packer sought to collude with Echo Entertainment as a “waste of taxpayers’ money”. The classic story of one man’s word against another’s meant a charge was never going to stick.

Meanwhile, the AFR’s Jamie Freed continues analysis of Qantas’ push for a level playing field on foreign ownership with rival Virgin Australia. But, while the national carrier has a strong case to make in Freed’s view, there is little to suggest anyone would be keen to build a strategic stake and it appears nothing more than a sign of concern from Qantas’ management about its future.

Finally, the Herald Sun’s McCrann discusses the stubbornness of the Aussie dollar and even foresees the potential for our currency to return to parity. That would be the stuff of nightmares for Reserve Bank of Australia governor Glenn Stevens, but if the US taper continues to get pushed back, it is a distinct possibility.

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