Dallas-based real estate investment manager Lone Star has increased its bid for London-listed developer Quintain.
The move comes just a day after activist hedge fund Elliott took control of a 12.9 percent stake in the company and said that Lone Star’s initial bid “substantially undervalues the company” and that it would not accept the offer.
The move came just as Lone Star extended its offer for a further week to September 30 after gaining approval from 71.7 percent of shareholders. Lone Star needs to reach 75 percent for the offer to become unconditonal.
Under the terms of the increased offer, Quintain Shareholders will receive 141 pence in cash for each Quintain Share, valuing the bid at approximately £745 million. The new offer is final and will not be further increased or extended beyond 1pm on October 10, 2015.
At the end of July, Lone Star initially bid 131 pence per share, a 7.4 percent premium to Quintain’s net asset value at the end of March. The increased bid represents a premium of approximately 31.8 percent to the closing price of 107 pence per Quintain Share on July 28, 2015, the last business day before the date of the original bid.
Yet, despite being a premium on paper, the original bid did not appear overly generous, analysts said.
“Quintain has traded at a valuation discount to the sector for an extended period of time as current management has sought to de-lever the balance sheet and focus on the development opportunity at Wembley,” David Brockton, real estate analyst at Liberum Capital, said.
The big draw for Lone Star is Quintain’s development of the Wembley Park area. “This is an opportunity to acquire a unique residential development scheme in London, with strong existing transportation links, and where its mid-price offering could have a big PRS [private rented sector] angle to it. The development profits that could accrue to Quintain from delivering Wembley are not fully factored into the valuation, and the longer term institutional value of PRS could provide even greater upside,” Brockton added.
With its takeover of Quintain, Lone Star is betting on the London property market and in particular, Wembley Park. Quintain is currently developing residential property in that area of London, with the Wembley development making up 77 percent of its asset exposure as of March. Of the developer’s total assets, the Wembley investment assets represent 33 percent, while development land makes up 42 percent, according to the Quintain investor presentations. Outside of Wembley, Quintain’s London investment portfolio accounts for 11 percent of its overall assets.
The all-cash bid from Lone Star has come from the firm’s Lone Star Real Estate Fund IV, alongside a £425 million term facility already lined up by relationship lender, Wells Fargo. The firm closed Fund IV in April at the fund’s hard cap of $5.5 billion.