Property developer Stockland (SGP) has increased its takeover offer for rival Australand (ALZ) to $2.5 billion.
The new offer is final, meaning Stockland can’t increase the offer price again if Australand rejects the offer for a second time.
The new offer has a degree of uncertainty – there’s a cash payment only if directors of Australand agree to the new offer, so it’ not really available to shareholders who accept now, without a recommendation.
Stockland owns 19.9% of Australand and can take its new $4.35 a share offer of cash and Stockland shares hostile, if it wants to.
Capitaland, the big Singapore based property group which wants to quit Australand would probably sell into a hostile offer.
But what is it going to do with the Stockland shares, if it doesn’t want Australand scrip any more? It would undoubtedly hold them for a while, and then sell.
That means the shares would overhang the market until disposed off, keeping a cap on any price growth for Stockland shares.
Stockland’s new share swap offer values Australand shares at $4.35 each, up from the previous rejected offer of $4.20.
The new offer comes after the two companies held talks following the rejection of the first takeover bid in April.
Those talks went nowhere.
SGP vs ALZ 1Y – Stockland ups final bid for Australand
Stockland bought its 19.9% stake in Australand in March and then waited three weeks (until after the Australand AGM) to launch its offer.
Stockland chief executive Mark Steinert said in a statement the higher offer provides an attractive valuation for Australand and its shareholders, and the two companies together would be a dominant player in the Australian property market.
Australand directors told shareholders not to take any action on the new offer while they consider it.
Stockland says the $4.35 a share is a 22% to the net asset backing of Australand.
It’s the second bid for Australand or part of it in a year. GPT’s offer to buy some of the company was rejected last year.
The new terms of the deal are 1.124 Stockland shares for every Australand security and up to $250 million in cash, to be agreed with the Australand board if they give the new deal the greenlight.
Australand securities eased to close at $4.21 down 1.1% as investors bet the second attempt wouldn’t succeed. Stockland shares rose 0.3% to $3.85.
The problem for Stockland is that with house prices solid (but tending to ease), Australand has $7.5 billion on residential property in its balance sheet, which is a big defensive plus.
If Stockland really wanted that, it has to offer a lot more.