Gagfah bid premium attractive given pre-offer run (MergerMarket)
Deutsche Annington’s [ETR:ANN] 16% takeover premium for Gagfah SA [FRA:GFJ] is fair given the company’s 27% stock price rise in the six months prior to the offer, according to two top ten shareholders in the target.
The first investor, in the top five, said he would eschew the opportunity to cash in the bid premium before the deal closes. Content with the deal terms, he is keen to tender stock and become a Deutsche Annington shareholder.
Neither shareholder had yet been contacted by the bidder, with the top five investor expressing some surprise he had not been approached for his opinion. Deutsche Annington only approached Gagfah “a short while ago”, a person familiar with the situation said. Deutsche Annington could not be reached for comment. Gagfah declined to comment.
Deutsche Annington has offered EUR 122.52 in cash and five of its own shares for every 14 Gagfah shares, implying a value of EUR 18 for each Gagfah share. The offer is at a 16.1% premium to Gagfah’s closing price on 28 November, or an 18.1% premium to the volume weighted average price (VWAP) over three months. Shares closed today (Tuesday) at EUR 17.83.
The offer values Gagfah at EUR 3.84bn and is dependent on 50% minimum shareholder acceptance.
Though each sector deal should be considered on its own merits, 16% is a solid premium considering the maturity of Gagfah’s business, the second investor said. Gagfah was fully valued before the offer and the company had reached its potential as a standalone business, he argued.
European real estate bids this year with Songbird [LON:SBD] and Corio [AMS:CORA] as targets have seen pre-announcement offer premia of 12.6% and 15.9%, respectively. Deutsche Wohnen’s [FRA:DWNI] takeover of GSW Immobilien [ETR:GIB] in 2013 was the last major German deal in the sector – it came with a 14.7% premium to the pre-announcement share price and a 15.4% premium to the VWAP.
Some Gagfah investors might have preferred more cash in the offer, but the equity portion should be value accretive, the first shareholder said. The combined property portfolio is adequately balanced and “size matters” in real estate given the scope for economies of scale, he added.
Deutsche Annington has estimated the merger will reinforce its position as the largest real estate company in Germany and create the second largest in Europe, with a gross asset value of about EUR 21bn. The acquirer’s estimate of EUR 84m in cost synergies, combined with analyst assumptions of financial and operational benefits of the deal, are all positives, the first shareholder said.
Gagfah had given notably confident mid-term guidance, the second shareholder said. In its 9M14 report, the company said it targeted annual LFL rental growth of 2.3%-2.5% over 2015-17 and annual EPRA NAV per share growth of 3.5%-4.5% over the same period.
Initially sceptical of real estate companies’ business models in a low interest rate environment, the first investor said Gagfah’s funds from operations (FFO) and dividend yield levels convinced him of the investment case for remaining long the stock. Gagfah’s 9M14 FFO yield was “on track” to hit the FY14 target of 6.3% (vs 9M13 at 4.1%), the company said last month.
At its 1H14 report in August, Gagfah hiked its FY14 dividend outlook to EUR 0.30-EUR 0.35 from EUR 0.23-EUR 0.25.
June 2014 saw Fortress Investment Group sell its final 27.78% stake in Gagfah for EUR 740m (or EUR 12.00 per share) after a number of earlier placements.