Melbourne property tycoon John Gandel has emerged as the kingmaker in two of the last major shake-ups of Australia’s retail property industry and few of his rivals are likely to challenge the latest move he is backing.
The tycoon, ranked ninth on the BRW Rich List last year with an estimated $4.08 billion fortune, backed the internalisation of the CFS Retail Property Trust Group as it was spun out of the Commonwealth Bank in 2014.
Now, he is supporting the friendly merger between the rebranded Novion and the Steven Sewell-led Federation Centres in a deal that will create a retail behemoth controlling $22bn of malls.
Already, his Gandel Group has benefited from the Novion share price jumping by 9.48 per cent yesterday. The group holds a 26.2 per cent stake in Novion, made up of a 21.6 per cent direct interest and a 4.6 per cent indirect interest, due to an arrangement with the Commonwealth Bank.
Gandel Group will hold a direct interest in the merged group of 13.8 per cent and a total interest, including the rights arrangement, of 16.8 per cent. The smaller stake in the much larger and more liquid group would make any future exit or sell down easier to execute.
But in a sign of its commitment to the new entity, Gandel will also have two experienced executives, Peter Kahan and David Thurin, on the board. Gandel is thought to have supported the merger strategy for a number of reasons.
These include a desire to have a Melbourne-based management platform — and analysts yesterday noted the scope for synergies between Federation’s offices at The Glen in suburban Melbourne and Novion’s existing property and asset teams in Melbourne that no other group could replicate.
Gandel Group’s co-ownership of Novion’s largest asset, Melbourne’s Chadstone Shopping Centre, also gave it a strong hand.
Any manoeuvre by a hostile bidder could have triggered pre-emptive rights on the famed Melbourne property, handing the group the ability to veto an unfavourable transaction. However, the deal has fuelled mergers and acquisitions speculation in the A-REIT sector, with Morgan Stanley analysts writing: “We believe the key takeaway of the effective takeover of Novion Property Group by Federation is that you can pay a relatively full price and spend significant transaction costs and still do a financially attractive deal, given the significant cost synergies and low marginal cost of debt.”
Senior property executives were cautious about the potential for a rival bid.
They cited the difficulty of beating the value from the proposed tie up and the “social issues” that hostile bidders often face. Traders at investment bank Moelis also downplayed the prospect. “It is difficult for a direct property buyer (ie. private equity firm or sovereign wealth fund) to pay the premiums to NTA that the vehicles are trading on.
Hence, a rival bid would likely need to be from another listed entity using scrip. We view this as unlikely — note the $40m break fee,” they wrote.
Deal-makers said yesterday that Gandel would also be well aware of the options presented by any potential local suitor, and he would have assessed all of them before supporting the Federation deal.
But low interest rates and global demand for shopping centres may see these players carefully run the ruler over yesterday’s deal as they seek to build their portfolios.
This article first appeared in The Australian Business Review