Takeover target Australand has released its target statement, urging investors to accept a $2.6 billion offer from Singapore’s Frasers Centrepoint, although some say the offer could soon be trumped.
Acceptances for Frasers $4.48-a-share cash offer remain stubbornly low, leading to speculation rival bidder Stockland would raise its scrip-and-cash based offer, which had valued its rival at $2.5bn.
Most fund managers have sold their stakes in Australand — leaving Stockland with 19.9 per cent and mostly hedge funds on the company’s register.
Frasers offer opened on July 7 and closes on August 7, although the group has reserved its right to extend the offer period.
CLSA says Stockland’s mostly scrip offer is equivalent to $4.54 a share. “In our view, Stockland will come in for at least one more higher bid. And we believe this is a non-consensus view, after two weeks of investor meetings in Asia and the US,” CLSA analyst John Kim said in a note to clients seen by The Australian.
CLSA says Stockland could alter its bid to become 70 per cent cash and 30 per cent scrip, valuing its target at $4.65.
“It would be highly earnings and adjusted fund from operations accretive,” Mr Kim said. “Stockland purchased its original 19.9 per cent stake at $3.78, so its average cost would be lower than Frasers’ on an equivalent bid.”
Fund managers holding stakes in Stockland say the company could risk paying too much for its rival, which has an investment portfolio of office and industrial buildings, a commercial property development arm and a residential business with key NSW holdings.
“The accretion is there, in our view. The ‘discipline’ can be addressed if Stockland were to line up a capital partner(s) to take on Australand’s office,” Mr Kim added.
It is understood Stockland has lined up a partner for Australand’s office portfolio but its management — stacked with former investment bankers — is having trouble getting board approval for a higher bid.
At the same time, JPMorgan says the chance of Stockland returning with a higher bid is small. JPMorgan analyst Richard Jones said a higher offer from Stockland would need to be more than $4.60 to be considered and such a bid would put Stockland over its desired gearing level of 30 per cent. Australand closed up 1c to $4.50.
On Monday Australand posted a 49 per cent jump in net profits for the first half of 2014.
This article first appeared on The Australian.