The first take-private of a UK property company by private equity real estate buyers since 2007 has come a step closer, with Minerva reaching an agreement with AREA Property Partners and Delancey Real Estate Management on the terms of a £202 million (€224 million; $323 million) buyout.
In a stock exchange announcement today, London-based Minerva said it had reached agreement on the terms of a recommended cash offer by bid vehicle, Jupiter Properties 2011 Limited, pitched at £12.50 a share. The offer price gives Minerva shareholders a 30 percent premium to the average share price in the 12 months up to 13 January this year when talks with interested parties began.
If the deal now completes, experts said it would constitute the first time since the onset of the financial crisis that a quoted UK property company had been taken over by private equity-style buyers. The last time this occurred was when The Carlyle Group took over European factory outlet developer Freeport plc four years ago.
Minerva is a small cap property company, but the key to the interest in the firm was that it owned a spread of prime London property, said JPMorgan analyst Harm Meijer. “It has quality property in London and a mix of residential, offices and retail, and if you can combine that with some market knowledge, experience or a local management team that has access to tenants, it can go quite quickly in terms of valuation,” he said.
Before any takeover can complete, however, a number of conditions must be fulfilled. It is conditional upon, among other things, Jupiter receiving enough acceptances to give it more than 50 per cent of the voting rights exercisable at a general meeting of Minerva. The consortium currently has an aggregate interest of around 12 per cent.
Oliver Whitehead, chairman of Minerva, said: “Having received an initial approach we have conducted an extensive auction process over the past few months and the board has concluded that the offer is the most attractive proposal and provides certain value for Minerva shareholders. The board has therefore decided to recommend the offer to Minerva shareholders, taking into account the risks, rewards and timescales associated with realisation of value from Minerva’s assets.”
Minerva has £1.1 billion of gross assets and a mixture of income-producing investments and developments in various stages, including a collection of properties in Croydon, south London, where a huge retail shopping development has failed to move along in ten years. Minerva’s other assets include the 450,000 square foot Wallbrook office building, that was finished in February 2010. In addition, the company has developed Lancaster Gate, a high-end residential project overlooking London's Hyde Park, and the Odeon Kensington, a residential development site on London’s Kensington High Street.
Though Minerva refinanced its debts in 2009, potential bidders have been circling in the knowledge that since then the level and availability of bank financing for real estate development activities has continued to be significantly constrained. This was acknowledged today in the recommended cash offer document, which said: “This (constrained financing) has implications for the company’s existing debt facilities, several of which are likely to need to be repaid, amended or extended in the coming years.”
In particular, the company has three facilities totalling approximately £120 million that are repayable this year. “It has recently become clear that these facilities will not be extended on the same terms that Minerva currently enjoys, with a likelihood that increased margins, some debt repayment and associated refinancing fees will be required to secure the continuation of existing debt finance. In the light of prevailing bank financing market conditions, it may become necessary for significant capital to be injected into Minerva either to facilitate future refinancings or to pursue future potential development activities,” said the document.
In addition to this, loans secured against two City of London office developments include leasing milestones which are required to be met during the financial year ending 30 June 2012. In the case of the Walbrook building, which is currently vacant, there is a covenant test due prior to the end of the current calendar year. In the absence of reaching agreement on alternative arrangements with the company’s lenders, one consequence of failure to meet these covenant tests could be Minerva being required to repay these facilities immediately.
The Financial Times reported today that Minerva had attracted a number of bids and held detailed discussions with rival private equity groups, including Goldman Sach’s Whitehall funds and Apollo.
This current bidding process follows other near sales. In January 2010, major shareholder KiFin, the investment vehicle of private investor Nathan Kirsh, had its tilt towards Minerva scotched. Dubai’s Limitless also failed to buy the company in 2008.
Delancey is trying to buy Minerva via DV4, a private equity real estate fund that was established in 2007 with more than £1 billion of equity.
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