ARA make $520m bid for Cromwell

Cromwell's largest investor, ARA Asset Management Limited finally announces its intention to make a $520m all cash proportional bid to acquire 29 out of every 100 stapled securities of Cromwell Property Group not currently owned by ARA.

ARA hope that a proportional offer will help existing unitholders realise value, at a premium, while retaining the ability to participate in any improved performance in Cromwell brought about by this initiative.

ARA has become increasingly concerned with the poor operational, performance, increased complexity, erratic strategy, overall governance and risk management protocols at Cromwell and has chosen to present an offer directly to Cromwell securityholders to gain control of the business.

If successful under the proportional offer, ARA , who currently hold a 24% interest, could increase their stake to between 46% to 49% of the securities and through its increased ownership, refresh the Cromwell Board.

As Cromwell’s largest securityholder ARA has, on a number of occasions, sought to constructively engage with the Cromwell Board in order to ensure securityholder value is protected and maximised. It is ARA’s view that a reinvigorated Board, with appropriate experience and a clear proprietorial focus, will bring necessary expertise and provide appropriate oversight of Cromwell management, to drive a clear and considered strategy and improved operational performance of the business.

ARA propose to acquire 29% of all Cromwell stapled securities that it does not already hold a relevant interest in for $0.90 per stapled security reduced by any dividends or distributions declared, determined or paid after 23 June 2020.

The Offer represents a 9.8% premium to Cromwell’s 30-day VWAP of $0.82 per stapled security. The offer price is at a premium to Cromwell’s recent trading prices despite ongoing market volatility and represents a:

• 3.4% premium to the last close of $0.87 on 22 June 2020;
• 9.8% premium to the 30-day VWAP of $0.82 on 22 June 2020; and
• 12.9% premium to the 3-month VWAP of $0.80 on 22 June 2020, but a
• -25% discount to the pre-COVID19 high of $1.21 on the 17 February 2020

The Offer will provide certainty of value at a premium for 29% of your Cromwell securities during this period of heightened economic uncertainty . Given Cromwell's elevated gearing levels in conjunction with the uncertainty surrounding rental collections and asset values as a result of COVID-19, ARA is concerned that Cromwell will seek to undertake a material equity raising at a discount to the offer price.

Tensions first rose between Cromwell and ARA emerged last year as it became apparent there were conflicts of interest between the pair as they competed for the same assets in the market. ARA's Mr Blight, who held a seat on the Cromwell Board, elected to resigned from the board however the rift widened when ARA was shut out of a $375 million capital raising by Cromwell, diluting its stake.

ARA's attempted last year and this year to appoint an "independent" member to the Board were narrowly defeated leaving ARA no option but to make an offer or withdraw and ultimately sell its current holdings.

Cromwell will naturally defend its position and advise security holder to take no further action while they re-value the portfolio and assess the proposal. CEO, Paul Weightman hit back at ARA, noting the 90¢ offer price was well below the Groups last reported net tangible assets of $1.04 per security, describing the offer as "opportunistic and a further example of the whole takeover-by- stealth process that has been going on".