Stockland could make a play for some of Australand’s industrial properties and apartment development projects in a bid to avoid a hostile bidding war with the Singapore-listed Frasers Centrepoint, which made a $2.6 billion cash bid for the Australian developer on Tuesday.
Stockland had sweetened its own scrip-and-cash bid for Australand last month but is now tipped to move to draw rival bidder Frasers into talks about carving up the target’s portfolio.
If successful, Stockland could still grow its portfolio, rather than face a bidding war in which the value of scrip is falling.
Stockland shares yesterday dropped by 4c to $3.97, while Australand shares closed 3c higher at $4.58, ahead even of Frasers’ $4.48 per share offer, implying further bidding is possible.
If Stockland walked away it could reap a profit of about $74 million from selling its 19.9 per cent stake in Australand. Analysts have also not ruled out the option of Stockland making a strategic counter-bid to make a further gain from its stake.
Stockland was tight-lipped on its plans yesterday, while Australand managing director Bob Johnston said the group’s board intended to recommend the proposal from Frasers in the absence of a superior proposal. “And subject to an independent expert opinion concluding the proposal is fair and reasonable to Australand securityholders,” Mr Johnston added.
Credit Suisse analyst John Richmond said that while a Stockland counteroffer may be tempting given strategic benefits, operating synergies, earnings accretion and the potential for a higher cash component to be introduced, the risks were too high.
He said a counter-bid was unlikely due to the risk of the Stockland share price falling in a bidding war and lowering the scrip bid value. He also noted the potential for asset value dilution at higher prices and noted that Frasers would be hard to outbid because it has access to a lower cost of debt.
He said Stockland could negotiate the carve-out of certain assets with Frasers as it is clearly focused on Australand’s industrial and apartment portfolio.
Moelis analyst Simon Scott said that some Australand investors may prefer a scrip option because it was more tax-effective. He said that a property split would be an option.
“The Frasers bid is not yet at a big enough premium for Stockland to throw in the towel,” Mr Scott said “We would not like to see Stockland raise its bid materially, albeit they should drive a hard bargain if they choose to sell their stake.”