On April 15, a group of 60 unitholders of the Investa Office Fund (IOF), its management, and other stakeholders gathered in a basement meeting room of Sydney's Radisson Blu Plaza Hotel to witness the grand climax of a contentious takeover battle that had been brewing for almost six months.
In the end, it all came down to numbers. Dexus Property Group needed a minimum 75 percent approval to take control of the A$2.5 billion (1.72 billion; $1.9 billion) 22-property IOF portfolio – a merger that would have created Australia's largest office trust, with combined assets reportedly worth A$24.1 billion. The listed Australian real estate developer was able to corral only 61 percent of the vote.
The general meeting has terminated Dexus' aggressive pursuit of IOF – the last tranche of Morgan Stanley Real Estate Investing's (MSREI) Australian property platform Investa – in what has been a “highly unusual takeover process which could have been handled better,” Deborah Page, the chairperson of the independent directors of the IOF, told the Australian press. Days later, Page and two other board members resigned. New independent directors have since been brought on board.
The future of the IOF platform, however, remains undecided.
MSREI has long been opposed to a Dexus takeover. The Australian company's original bid in late December, valuing IOF shares at A$4.19, did not go well with the New York-based firm, since it reflected a marginal premium and would have been paid primarily in shares, according to a person familiar with the deal. Dexus' subsequent sweetened offer to A$4.24 per share in April was seen as a “good step but still not enough,” the person said. MSREI's 8.9 percent stake in IOF made it legally entitled to have its say in IOF's future.
However, the final nail in the coffin for Dexus, whose offer had the endorsement of the independent board members and the independent advisory firm KPMG, came days before the planned vote, when Cromwell Property Group decided to acquire CBRE Clarion's 9.8 percent stake in the listed IOF fund. According to an Australian investment manager, the South African real estate investment trust Redefine, which owns an interest in Cromwell, had given support to the group's pursuit of Investa. Cromwell hasn't publicly indicated yet what its next steps might be.
The Sydney-based manager adds it would be in MSREI's interest to retain its 8.9 percent stake in IOF until it is able to collect the remaining A$45 million from the February sale of Investa's management platform to the unlisted Investa Commercial Property Fund for A$90 million. However, half of the proceeds from the sale are understood to be conditional on MSREI retaining control of the IOF portfolio.
Further adding confusion is a rumored rival bid emerging from a consortium of investors that includes The Blackstone Group, China Investment Corporation and the listed Australian developer Mirvac. The parties have declined to comment on the bid. However, as a former Dexus senior executive pointed out to PERE, the move wouldn't come as a surprise given the dynamics at play. Former Investa chief executive officer Campbell Hannan joined Mirvac earlier this year, while Chris Tynan, MSREI's head of Australia who played a key role in the sale of the Investa Property Group's office portfolio to CIC, was appointed by Blackstone to lead its operations in Australia last November.
In any case, the Investa saga – which first began in early 2015 when Morgan Stanley announced the sale of the $8.9 billion platform – is not expected to reach its end for some time to come.
The Investa saga timeline
The sale of the last remaining part of the Investa platform has been embroiled in a messy takeover battle
December 7 – Dexus makes initial offer for Investa Office Fund
December 18 – Dexus signs binding implementation agreement with IOF's independent board committee
February 22 – Morgan Stanley Real Estate Investing sells management rights of IOF to Investa Commercial Property Fund for $90 million
March 24 – Morgan Stanley wins NSW Supreme Court battle against Dexus and is allowed to vote on Dexus' takeover vote
April 1 – Dexus increases IOF takeover offer to A$4.24 per share in response to rumored rival bidders
April 13 – Cromwell Property Group becomes IOF shareholder by acquiring CBRE Clarion's 10 percent stake
April 15 – IOF shareholders vote 60:40 to reject Dexus' takeover offer
April 18 – New independent directors appointed to IOF