Analysts are betting that Stockland’s move to buy a $435 million “strategic stake” in Australand is a precursor to a full takeover bid although some say it would be foolish to make a tilt.
Morgan Stanley is labelling its snapping up of a stake strategically questionable and “negative on face value”, while Moelis & Co says a full takeover bid would “not be prudent” and will require the issuance of equity.
Australand overnight became the hot m&a property stock in the Australian market, after Stockland bought a 19.9 per cent in Australand from Singapore’s CapitaLand. Stockland paid an average $3.78 per share for its chunk of CapitaLand’s final 39.9 per cent selldown.
Moelis & Co’s Simon Scott said in a note that the “strategic stake” was a precursor to Stockland launching a full takeover bid but said such a tilt would require it to issue equity.
Stockland’s gearing is about 27 per cent after the stake purchase, which Moelis predicts would grow to 40 per cent if Stockland is to fully debt fund an acquisition.
“We do not view this as prudent based on the current Stockland share price,” Moelis said. “Therefore the most likely scenario if Stockland moves to a full bid in due course, is that they bring a partner(s) to either buy some of the Australand or Stockland office assets outright or form a JV.”
A Morgan Stanley analyst note took a hard line on Stockland’s new stake, saying “on face value we see the transaction as negative” and “overall a risky strategic move that will need to be clearly explained to the market”.
Morgan Stanley also said the market would have “painful memories” of Stockland’s prior strategic stakes, pointing to its 12.7 per cent stake in GPT and 13 per cent in FKP (now Aveo Group), both bought in 2008.
“Both resulted in meaningful losses and no eventual gains,” the note said.
The Australand stake is expected to be broadly EPS neutral for Stockland.
CapitaLand exited its 39.1 per cent stake overnight, with Citi selling shares in two separate block trade parcels. The remaining 19.2 per cent sold to institutional investors, with holders on the CapitaLand register understood to have been given priority.
Local investors appear not to have been offered any of CapitaLand’s selldown stake, JP Morgan said.
“Seems most of theAustraland stock went offshore to CapitaLand holders (or at least that’s the version I’ve heard too many times to suggest there’s not some truth to the story),” a note said.
CapitaLand started its selldown in November, when it offloaded 20 per cent of its stake – signalling that control of Australand would be up for grabs.
“Given 59.9 per cent of Australand was available in recent months through Capitaland’s complete sell-down of its strategic stake, investors will be questioning why Stockland did not act sooner or take a bigger stake,” Morgan Stanley said.
Some fund managers said Australand was a good natural fit or partner for Stockland, saying a full takeover of Australian would boost Stockland’s medium density and industrial development capabilities. However, Morgan Stanley questioned the synergies.
“Whilst on paper Australand plays in industrial and medium density (two areas Stockland wants to expand), Stockland cannot extract any synergies (either through cost reduction or restructuring Australand’s debt) without launching a full takeover for the group, which could be quite expensive (and value destructive),” Morgan Stanley said.