A subsidiary of Singapore’s ARA Asset management has announced plans to launch a partial takeover bid for Australian property investor Cromwell Property Group and acquire a large chunk of Cromwell securities that it does not already own.
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 commence ‘a robust and thorough strategic review of the business’.
The shareholder, which first bought into Cromwell in 2018, said 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.’
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. The bid is unsolicited and ‘opportunistic’, according to Cromwell which has advised its shareholders to not take any action.
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.’
