ARA Asset Management formalised their offer to take over Cromwell by issuing their bidders statement today.
ARA holds a 24% interest in Cromwell and has launched a proportional take over offer of 29% of each remaining security, sufficient to provide ARA control over the group with 46% of the units. ARA are offering $0.88125 cash per Sold Security which is a;
- 3.5% premium to the Distribution Adjusted last close price of $0.85 per Cromwell Security prior to the Announcement Date;
- 10.0% premium to the Distribution Adjusted VWAP of $0.80 per Cromwell Security for the 30 trading days leading up to the Announcement Date; and
- 13.2% premium to the Distribution Adjusted VWAP of $0.78 per Cromwell Security for the three months leading up to the Announcement Date.
ARA Group state that they have become increasingly concerned with the poor operational performance, increased complexity, erratic strategy, overall governance and risk management protocols at Cromwell. Specifically, ARA have pointed out that;
- there has been a significant deterioration in Cromwell’s operating EPS despite strong rental growth and capital appreciation in the commercial real estate markets during the same period;
- there has been a material 13.1% reduction in distributions per Cromwell Security from 8.34 cents per security in FY17 to 7.25 cents per security in FY19;
- gearing has increased to 40% on a reported basis as at 30 April 2020, with look-through gearing remaining materially above the upper limit of the Cromwell Board’s own target gearing range of 30% – 40%;
- there has been a poor track record with continued investment into the European property market, with Securityholder funds used to: acquire Valad Europe for A$208 million with transaction goodwill of A$143 million subsequently written off within 3 years ; and almost A$1 billion has been invested in the portfolio of Polish shopping centres
- Despite Cromwell’s poor operational performance, corporate costs ballooned by 48.3% from FY18 to FY19 while the CEO’s statutory remuneration increased by 34.1%
In making the offer, ARA will also seek to appoint Dr Gary Weiss AM and Mr Joseph Gersh AM to the Cromwell Board. Mr Gersh practised law for 20 years as a senior partner and has had significant business experience with a range of public and private companies. He is currently a member of the Board of the ABC and the founder and Executive Chairman of Gersh Investment Partners Ltd, a specialist real estate investment bank. Securityholders previously squashed attempts by ARA to appoint Gary Weiss, however with a proportional take over bid now on offer, the Board will be seeking two seats on the Board.
The ARA Group will recommend that the reconstituted Cromwell Board conducts a thorough and broad-based strategic and financial review of Cromwell’s corporate structure, assets, businesses, personnel and operations to drive a refresh of Cromwell’s strategy.
Cromwell will issue a response to the bidders statement with the outcome of updated valuation numbers and a defence to the various statements made by ARA.
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