DEXUS and ICPF slug it out over Investa Office

Deutsche Bank Place is one of the towers owned by Investa Office Fund. Photo: Michele Mossop The battle for control of the Investa Office Fund has intensified with the independent directors and experts endorsing the $2.5 billion DEXUS​ offer, while the current manager has rejected the valuations contained in the offer documents.
Nanjing Night Net

The two-pronged situation for IOF unitholders of accepting the DEXUS offer or staying with Investa Commercial Property Fund, as the current manager, was further muddied with suggestions that rival Mirvac is working on a counter-offer with at least two parties, including the Chinese Investment Corporation.

IOF unitholders will vote on the DEXUS proposal on Friday, April 8, in Sydney. Morgan Stanley has a direct stake of 8.9 per cent and it is still unclear if it can vote on the deal.

The speculation of a new bid had IOF units rise yesterday 12¢ to $4.11, and DEXUS rose 0.8¢ to $7.76.

After a long year since Morgan Stanley kicked off the sale of the Investa platform, the listed IOF released its 344-page explanatory memorandum on Tuesday, in which its independent board committee unanimously recommended the cash-and-scrip DEXUS offer.

Peter Rowe, an IOF independent director, said the process to sell IOF has been “thorough and exhausting and the DEXUS offer was considered in the best interests of IOF unitholders”.

“Since this all started, we have had one thing on our minds, which is to get the best outcome for IOF unitholders,” Mr Rowe said.

The proposed DEXUS deal was also given the tick of approval from KPMG, the independent experts to IOF. “KPMG Corporate Finance has concluded the DEXUS proposal is fair and reasonable to, and in best interests of, IOF unitholders in the absence of a superior proposal,” the report says.

Rival DEXUS launched a $0.8229 cash and 0.424 DEXUS securities per IOF unit offer for the listed Investa Office in late December as the third tranche in the sale of the whole Investa platform by Morgan Stanley.

The other parts of the Morgan Stanley sale saw the Chinese Investment Corp pay $2.5 billion for the portfolio of IOF buildings, Proprium Capital Partners bought Investa Land for $340 million, while the unlisted ICPF is now the manager of IOF.

If successful, the merged DEXUS-IOF entity will create a $24 billion office-focused real estate investment trust that will dwarf its peers.

DEXUS will increase its share of the national office market to about 7.4 per cent from 2.6 per cent in 2009, or about $17.5 billion, and will own assets such as Deutsche Bank Place at 126 Philip Street, Sydney, and 567 Collins Street, Melbourne.

In Sydney it would command about 11 per cent of the premium-grade office skyscrapers.

ICPF chief executive Jonathan Callaghan said: “We have reviewed the EM outlining the Dexus Proposal”.

“It reaffirms our view that the Dexus proposal is not compelling and undervalues IOF, with minimal premium for control. In the coming days Investa will present a choice for IOF unitholders to consider ahead of the vote on 8 April that will support a strong case for unitholders to vote ‘no’ to the Dexus proposal,” Mr Callaghan said.

According to the offer documents, the DEXUS proposal delivers IOF unitholders annualised 2016 funds from operations earnings accretion of 17.5 per cent per IOF unit as well as significant diversification and scale benefits, and exposure to additional revenue streams with enhanced growth opportunities within the DEXUS business.

But institutional investors, some of whom have been lukewarm on the DEXUS deal, have disputed this, saying that in the independent expert report it states because the DEXUS share price was influenced by the security buyback program, which was suspended on December 7 last year before the offer was proposed, “our valuation analysis has focused on post-announcement market prices of DEXUS securities”.

The investors said that based on this statement, the premium to net tangible assets was a negative 0.2 per cent.

In response to the document release,  DEXUS chief executive Darren Steinberg said it was an attractive transaction for DEXUS security holders and a “compelling proposition for IOF unitholders, both financially and strategically”.

“It brings together two complementary portfolios and provides the opportunity for IOF unitholders to participate in the immediate benefits associated with an investment in DEXUS,” Mr Steinberg said.

“In addition to ownership of a quality Australian property portfolio, IOF unitholders will benefit from our established third-party funds management and trading businesses.

“The merger also enables IOF to achieve an internalised management structure, benefiting from an experienced and stable team with a proven track record and established, efficient systems and processes.”

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