Property groups Lend Lease Corp and Mirvac may have both confirmed they have been in talks about a potential transaction but that's about as far as it goes at the moment.
If weeks of speculation are to be believed then Mirvac is a takeover target, but yesterday's statements from the two companies, forced out after media reports of a possible deal, leave us no better informed.
Certainly the market thinks it is more of a positive for Lend Lease with the shares hitting a high of $19.92, then retreating, and then rising again in the afternoon.
In contrast the market wondered about Mirvac: the shares hit a high of a record $6.18 before lunch, and then retreated in the afternoon.
Both shares stood out in yesterday's weaker market conditions because of the report and statements.
Perhaps the market feels Mirvac and its shareholders could be a loser, and Lend Lease a winner. If that's the case then the terms of any deal will have to be sweetened.
In separate statements from the two yesterday they made it clear there was no expectation or certainty a deal would arise from the talks.
"Lend Lease confirms that it has over time held various discussions with Mirvac on a confidential basis," Lend Lease said.
"There is no expectation or certainty that any transaction will result from these or any other discussions."
Mirvac, which invests in, develops and manages hotels, retail and industrial properties, has been rumoured as a takeover target over the past two months.
Its shares are up 12% since the beginning of October while Australia's listed property trust index has fallen 5.9%, driven down by the problems in the US and Britain where many of our listed trusts have investments.
Mirvac is mainly a domestic operator, with little international exposure.
Lend Lease on the other hand is a substantial international property player, especially in the construction side where its Bovis division is a big operator
It could be that Mirvac's recent price run has made it more expensive, and that the problems emerging in commercial property in the UK and US have made Lend Lease a more problematic partner for the time being.
Mirvac shareholders would object to being exposed to Lend Lease's international business, especially the Bovis construction business. That would be a repetition of the way unitholders in GPT rejected the takeover from Lend Lease three years ago. Lend Lease had the added advantage then that GPT was created and nurtured by Lend Lease, and in fact shares similar management ideals.
According to brokers Mirvac is trading at around 19 times forecast 2008 earnings, or closer to 25 times if you exclude profits on property sales.
Lend Lease is trading at around 17 times forecast earnings, so there would be a large pricing gap, and one that Lend Lease shareholders may object to. Mirvac shareholders might end up with more of the combined company than Lend Lease shareholders thought proper.
Mirvac is thought to have better management than Lend Lease, with property veteran, Greg Paramour at the helm and responsible for the turnaround of his company over the past three years.
Mirvac was more of a target then, rather than now.
Mirvac said in its statement:
"Mirvac Group [ASX: MGR] wishes to respond to the speculation concerning potential transactions and today's release by Lend Lease Corporation [ASX: LLC].
"Mirvac advises that it constantly investigates and discusses opportunities with a range of parties over time to maximise securityholder value, including with LLC whom we have joint venture activities.
"There is no expectation or certainty that any transaction will result from these or any other discussions."
Lend Lease said in its statement.
"We note the recent market speculation concerning potential transactions involving Lend Lease and Mirvac.
"Lend Lease constantly evaluates alternatives to maximise shareholder value from its businesses and from time to time considers proposals from third parties which may achieve this result.
"Consistent with this, Lend Lease confirms that it has over time held various discussions with Mirvac on a confidential basis.
"There is no expectation or certainty that any transaction will result from these or any other discussions."
Things are no longer that confidential.
Meanwhile, anyone wondering about the outlook for the UK market, where Lend Lease is a major player, should consider these comments from Merrill Lynch's note to clients yesterday:
"While we are not necessarily calling for near-term UK fund redemptions for Goodman and Valad, we no longer feel comfortable forecasting growth in the region, until the property and credit markets stabilise. We have taken into consideration the following anecdotal evidence:
"GMG UK fund delayed. Goodman announced last week on its 3Q07 market update call that it will likely delay the launch of its UK logistics fund from FY08 to calendar year 2008 (i.e. six months) citing market conditions.
" WDC maintains stake in UK fund. Westfield raised a £530 million (A$1.25B) UK retail fund in July 2007 at an attractive yield of 4.6%. The establishment of the fund was announced after WDC sold 67% of the fund to two cornerstone investors. While this was a positive fund raising and valuation, WDC stated on its recent 3Q07 market update call that it will be keeping the remaining portion of the UK fund for the time being.
"LLC UK fund delayed. Lend Lease indicated to the market that it was looking to raise a UK shopping centre fund in FY08-09. Similar to Goodman, it will likely delay the launch due to market conditions.
"Major press companies in the UK, including the Times, Independent, and Financial Times, have reported abou
