Fir Tree Partners, a New York private investment firm, has cranked up the pressure on US logistics giant ProLogis, by saying its takeover offer for ProLogis European Properties (PEPR) undervalues the company.
In a statement made yesterday, Fir Tree said it was also concerned about conflicts of interest “inherent” in ProLogis’ position as both the controlling shareholder of ProLogis Management, which manages PEPR externally, and as the potential acquirer. It even went as far as to threaten the involvement of various financial authorities to determine a fair value for the company.
PEPR became the subject of a takeover bid a fortnight ago when Dutch asset manager APG Algemene Pensioen Groep came forward to say it wanted to make a €1.2 billion offer to take PEPR private because of what it called a persistent gap between the company’s share price and net asset value. It highlighted corporate governance concerns as a primary reason for that disparity. However, it’s indicative offer at €6 a share was rejected, and immediately prompted Denver-based ProLogis to boost its shareholding from 33 percent to 38 percent, triggering a mandatory takeover approach under NYSE Euronext stock exchange rules. ProLogis offered €6.10 a unit.
Fir Tree, which owns a 4.3 percent stake in PEPR, responded yesterday by arguing ProLogis’ bid had been made at a discount to the net asset value of €6.32 a share.
It said: “In an M&A context, buyers typically pay a premium to underlying asset value to reflect the value of control and of synergies that they may achieve. Fir Tree believes that the true value of the units is higher than (the) EPRA (European Public Real Estate Association) NAV, since EPRA NAV is a backward-looking estimate that uses current trough-cycle rents and penalizes the fund for short lease terms.”
It added the improved global economy and the fact that very little new supply had been created in the last three years, should lead to “outsized rental growth” compared to the market because of PEPR’s shorter lease breaks. “A fair offer should compensate unit holders (other than ProLogis) for giving up this future growth,” it said.
Fir Tree rejected the offer even though ProLogis’ bid was at a premium to the share price when made on 14 April. In its outburst yesterday, it said the previous trading price was not a valid indicator of value because PEPR's price was “artificially held down” by the fund's refusal to reinstate the regular dividend. Fir Tree said: “Until recently, PEPR was one of the cheapest publicly-traded real estate entities in Europe on a number of different metrics despite having a very young portfolio located in key barrier markets, an impressive list of tenants, market-leading occupancy levels, and a conservative leverage profile. The only possible reason for the gap between the NAV and trading price of PEPR units is that PEPR is one of a handful of listed entities that does not pay a dividend.”
In another broadside, it then highlighted corporate governance concerns. “We are concerned about the conflicts of interest inherent in PLD's (ProLogis’) position as both the controlling shareholder of ProLogis Management, the external manager of the fund and a potential acquirer. It is not lost on us that PLD has increased its ownership of PEPR units twice after suspending the dividend, both times at a discount to EPRA NAV. Given this conflict, it is curious that the offer document invites ProLogis Management to give its advice on the PLD Tender Offer despite the fact that it is a related party.”
“We believe that the offer should be revised using best business practice and valuation methods to ensure that the holders of units are treated fairly, are afforded a fair price for their units, and are given a genuine opportunity to make an informed decision with respect to the PLD Tender Offer.”
In a final flurry, it even threatened to involve various financial authorities. “While we are prepared to be accommodating to help the process, we respectfully reserve all our rights in respect of the PLD Tender Offer. In particular, we reserve the right to resort to the competent authorities, the Commission de Surveillance du Secteur Financier and the Authority for the Financial Markets, to take action and determine the fair price for the units, which we believe would result in a higher value being paid to unit holders than the current price.”
Peter Cassels, chief executive officer of PEPR told Bloomberg the company would not be responding to Fir Tree “directly, right now.”
He said: “We’re reviewing the offer document from ProLogis and we will come to a reasoned opinion on that in as short a timeframe as possible.”