Australian property group Cromwell has said that it regards ARA’s recent takeover bid as 'unsolicited' and ‘opportunistic’, with the offer price substantially undervaluing the current Cromwell business and its future prospects.
‘The Cromwell Board considers the proportional offer to be an opportunistic attempt to gain control of Cromwell without offering to acquire all stapled securities or paying an appropriate control premium to Cromwell securityholders,’ Cromwell said in a statement.
Securityholders are advised to reject the bid, which is said to reflect a discount of at least 10% to Cromwell’s estimated pro forma net tangible assets per stapled security as at 30 June 2020. The bid also ignores the value associated with Cromwell’s funds management business which has $8.3 bn of funds under management as at 31 December 2019, Cromwell noted.
The offer at a price of 90c represents a premium of 9.8% to Cromwell’s 30-day Volume Weighted Average Price (VWAP) of 82cps.
‘ARA is seeking to exploit the current dislocation in listed markets to obtain control over Cromwell without paying an appropriate control premium,’ it added.
‘The offer is ARA’s third attempt to obtain control of Cromwell without paying an appropriate premium to securityholders, following two unsuccessful attempts to force its nominee Dr Gary Weiss onto the Board.’
ARA, which is already Cromwell’s largest shareholder with a 24% stake, is looking to buy an additional 29% in the hope that the increased shareholding will allow it to replace the board and commence ‘a robust and thorough strategic review of the business’.
The shareholder, which first bought into Cromwell in 2018, said earlier this week that it has become increasingly concerned about the Brisbane-based company’s poor operational performance, and has sought to constructively engage with the board on a number of occasions to ensure security holder value is protected and maximised.
‘ARA has been left with no choice but to pursue this course to try and restore value for the benefit of ARA and all security holders in Cromwell,’ commented ARA Group CEO John Lim. ‘We seek change based on our strong belief that the existing Cromwell strategy is failing and exposing our investment to unacceptable risks. This is magnified by poor cost control by management, at times inexcusable largesse, and weak corporate governance.’
In a statement, ARA complained about the ‘significant deterioration in Cromwell’s operating EPS’ that dropped every year between FY17 and FY19 despite strong rental growth and capital appreciation in the commercial real estate markets during the same period. Despite the poor performance, corporate costs have ballooned by 48.3% and the CEO’s statutory remuneration increased by 34.1% from FY18 to FY19, it added.
ARA also put Cromwell’s European investment under scrutiny, saying the firm bought Valad Europe for $208 mln and subsequently wrote off $143 mln of transaction goodwill within three years of the acquisition. It also bought a portfolio of Polish shopping centres for close to $1 bn which ARA said is now likely to be subject to ‘significant value reduction.’
Cromwell said nevertheless that a preliminary valuation of the group’s portfolio including the Polish Retail Fund pointed to a minor value correction, with the vehicle shedding 5% of its value, or €31 mln.
