Citi Property Investors and Gazit-Globe have agreed to invest up to €800 million ($1.2 billion) in Vienna-listed European developer Meinl European Land.
Citi and its partner, which is an international developer listed in Tel Aviv, are to fund the investment via €500 million of subordinated convertible debt securities and a €300 million rights issue underwritten by them. In exchange, Citi and Gazit-Globe will end up with a 30-40 percent stake in the company depending on how many shares are taken up in the rights issue.
Meinl European Land owns properties worth around €1.8 billion as well as a development pipeline estimated to be worth €3.7 billion, according to Meinl Bank, which established the company in 1997.
The agreement with Citi and Gazit comes six months after Merrill Lynch was appointed to sound out potential investors and examine options for improving corporate governance at the company.
Meinl European Land has been forced into taking action after courting controversy for a surprise share buyback last August. Meinl’s decision to buy back 17 percent of its shares for €1.1 billion was done without shareholder approval leading to a loss of credibility and concerns about governance.
As part of its restructuring, the company has agreed to terminate a management agreement with Meinl European Real Estate, a subsidiary of Meinl Bank. Just prior to flotation on the Vienna stock exchange in 2002, Meinl Bank announced Meinl European Land would pay Meinl European Real Estate a yearly management fee of 0.5 percent of the company’s assets.
Citi and Gazit are paying €280 million to break that contract as well as other contracts Meinl European Land has with affiliates of Meinl Bank, which collectively are worth €380 million over six years. That doesn’t mean that the two new investors must find a team immediately to manage the real estate assets because they have got agreement to retain the services of Meinl European Real Estate for one year.
Meinl’s senior management is being scrapped in favour of a new chief executive, chief financial officer and head of acquisitions, who are yet to be appointed, according to a statement from the company. As part of a drive to improve corporate governance, several heavy-hitting industry names have agreed to become independent directors, assuming the deal closes in the second quarter. They include Albert Sussman, professor of real estate, finance, and public policy at Wharton School of Business and Peter Linneman, principal of Linneman Associates.
Shanti Sen, head of merchant banking at CPI led the deal for her new employers. Sen joined late last year from GIC, the government of Singapore’s investment division.
Roger Orf, head of Europe at CPI, said: “The transaction we are proposing will allow Meinl European Land to focus on the existing portfolio and future development of its land bank. The capital injection will have an extremely positive effect on the company’s balance sheet and, ultimately, the credit rating. It provides the company with the ability to self finance and will improve the terms on which it can source external finance in these difficult times, all of which help to re-establish its position as a leading property owner in Central and Eastern Europe.”
Chaim Katzman, chairman of Gazit-Globe, who will become chairman of Meinl, said the deal allowed the company to “take control of its management base,” adding that initial priorities were to create predictable and sustainable cash flows from the underlying assets and to set out a growth plan.