Lend Lease’s acquisition of the rest of Lend Lease Primelife Group (LLP) it doesn’t already own, has received the support of Primelife’s independent directors and an independent valuation report.
Lend Lease last week entered into a scheme of arrangement for the acquisition of the remainder of Primelife’s issued stock for 31 cents per security.
Lend Lease currently owns 43.2% of Primelife, a retirement homes and seniors accommodation provider known formerly as Babcock & Brown Communities Group.
The total capital outlay associated with the acquisition is about $170 million, which Lend Lease has said would be funded from existing cash reserves and debt facilities.
Primelife yesterday lodged the scheme booklet with the Australian Securities and Investments Commission (ASIC), which includes supporting statements from the independent directors and independent expert Deloitte Corporate Finance.
Deloitte concluded that the share scheme and the terms of the unit scheme were fair and reasonable and in the best interests of Primelife security holders and Primelife’s independent directors unanimously recommended security holders vote in favour of the proposal at meetings scheduled for December 8.
In fact the independent expert’s report gave ample reasons why shareholders in Primelife should take the money and run.
It argued that without takeover the company would find it harder to reduce gearing to the target range of 20%-25%
There was "the requirement of LLP’s banks for LLP to reduce bank debt by approximately $100 million to a facility limit of $350m by June 2010; and the need to renegotiate the remainder of the bank facility by 18 December 2010."
As well, the company’s net debt (comprising bank debt and convertible notes) "as at 30 June 2009 is equivalent to a 44% gearing ratio.
"If the Proposal is not approved, the LLP Board’s view is that the appropriate amount of additional capital to raise is not less than $300 million, through a combination of an equity raising and assets sales, in order to achieve the target level of gearing.
"Compared to the $0.31 cash in the hand offered under the Proposal, the LLP Board has identified in the Booklet a number of concerns about the potential of equity raising and assets sales that will otherwise have to be undertaken if the Proposal is not approved and implemented.
"These concerns include:
"Equity raising: The risks and uncertainties associated with a highly dilutive equity raising that would need to be priced at a substantial discount to the market price of LLP Securities and would likely result in a material reduction to LLP’s NTA and NAV.
"Further there is no assurance that LLP would be able to successfully complete a significant equity raising given the risk that a highly dilutive equity raising may not be broadly supported by securityholders, including LLC.
"Asset sales: LLP may be required to sell high cashflow yielding assets. The LLP Board is reluctant to initiate large scale asset sales in the current environment because of the potential impact this would have on the LLP business model and future cashflows and gearing."
"LLP Independent Chairman, Andrew Love said, “The Proposal offers LLP Securityholders the certainty of cash payment for their stapled securities at a premium to the recent trading price for LLP securities, it exceeds the net tangible asset backing of an LLP security and it is unanimously recommended by the LLP Independent Directors in the absence of a superior proposal.“
“The Proposal represents a compelling alternative when considered against the uncertainty and risks associated with a highly dilutive equity raising and the sale of assets in a weak market, which the LLP Board will need to implement if the Proposal does not proceed” Mr Love said."
Lend Lease shares were up 6 cents at $9.28 then fell in the afternoon to be down 11 cents at $9.11. LLP securities were steady on 30 cents.
