Centuria Struggling to get 90% of Primewest

4 June 2021

The proposed takeover of Primewest by Centuria has progressed without any potential counter parties emerging, however Centuria have not yet obtained the minimum number of securities they had hoped to achieve forcing the group to extend the offer period by a further week and drop the minimum conditions.

Under the Merger terms, Primewest securityholders will receive $1.51 per Primewest security, consisting of:
• $0.20 of cash per Primewest security; and
• 0.473 Centuria securities per Primewest security, equating to $1.31 based on Centuria’s closing price on 16 April 2021.

The implied offer price of $1.51 per Primewest security represents a:
• 3.1% premium to Primewest’s last close price of $1.465 per security on 16 April 2021;
• 7.0% premium to Primewest’s 5-day VWAP of $1.412 per security on 16 April 2021; and
• 51.0% premium to Primewest’s IPO offer price of $1.00 per security on 8 November 2019

Primewest is substantially held by its founders, John Bond, David Schwartz and Jim Litis, who between them own 53% of the entity, however the remaining units are held by many of Primewests traditional investor base who are clearly waiting for a better deal to emerge. Centruia are likely to stand firm on the proposal, particularly in the absence of any competing offer.

The Independent Board committee of Primewest is supportive of the merger and believes it offers a range of potential benefits to Primewest Securityholders including;

  • Integration of two high-performing management teams with the intended retention of Primewest staff;
  • Opens new retail distribution channels together with broader institutional mandates;
  • Enhanced geographic and sector diversification, which allows the merged group to take advantage of a broader range of acquisition opportunities;
  • Financially compelling with material earnings per security accretion of 4% for Centuria and 19% for Primewest on a pro forma FY21 basis;
  • Material synergies to support growth of AUM, expansion of property services across both businesses, removal of duplicated corporate costs and tax related synergies; and
  • Merged group expected to be well placed for ASX/S&P 200 index inclusion with an estimated pro forma market capitalisation of $2.2 billion.

Centuria have today declared the offer as unconditional meaning that Centuria will ultimately proceed with the acquisition even if they end up with the 76% interest they have tied up so far. Under the circumstances, Centuria will hope to still get to a 90% interest by the closing date enable them to complete the compulsory acquisition process under the Corporates Act.

Further Information

My view is that another bidder for Primewest is unlikely to emerge and that the outstanding unitholders will ultimately be reluctant sellers to Centuria.

I had previously felt that the premium offered by Centuria was low, compared to other real estate mergers in 2019, and that it would draw out a competing bid. The fact that this has not occurred may reflect a range of factors including the support shown to Centuria by the founders and their followers and the significant stake they held in the deal. There are also few real estate fund management group who would want to take up the platform the Primewest have to offer. Other groups either have their own or are more focused on larger institutional sources of capital.

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