DEXUS calls in the lawyers

The future of DEXUS's proposed takeover of Investa Office Fund (IOF) is still up in the air with only two weeks to go before the proposal is due for a vote.

The result may hinge on an entity controlled by Morgan Stanley that owns around 9% of IOF, and whether it should be allowed to vote on the proposal.

In late February, Morgan Stanley sold the management rights of IOF to Investa Commercial Property Fund (ICPF). The AFR has reported that Morgan Stanley will receive a payment of $45 million if ICPF is still the manager of IOF at the end of the year. DEXUS maintains that this creates a conflict of interest.

As the proposed takeover is through a scheme of arrangement, DEXUS requires 75% of votes to be in favour. If Morgan Stanley is prevented from voting its 9% stake, this target will become much easier (assuming that Morgan Stanley would vote against the proposal).

During all of this, a subsidiary of ICPF (IOM) has been marketing directly to IOF shareholders asking them to vote against the DEXUS proposal. This includes sending out pre-filled proxy forms. It is believed neither IOM nor ICPF own any shares in IOF.

DEXUS has submitted a request to the takeovers panel that the entity controlled by Morgan Stanley be prevented from voting on the scheme. DEXUS is also seeking orders that IOM stop sending out its fliers and advocating against the proposed takeover. 

In response, Morgan Stanley has filed proceedings in the Supreme Court seeking a declaration that it be allowed to vote on any resolution regarding the proposed DEXUS takeover.

Decisions are still pending on both matters.

There have also been rumours of a competing bid, with a consortium including Blackstone, China Investment Company and Mirvac thought to be the most likely party.

We'll continue to monitor the situation, although we won't commence formal coverage of Investa Office Fund. DEXUS is up 6% since we reviewed its interim result last month and we continue to recommend that you HOLD.