Songbird’s independent directors could hold sway over QIA/Brookfield board seats
* Governance changes to require impartiality from directors
* Major shareholders ability to vote questioned
The fate of Songbird Estates [LON:SBD] could rest on the company’s two independent board members if a bid by Qatar Investment Authority (QIA) and Brookfield Property Partners [NYSE:BPY] attracts more than 50% but less than 90% acceptance, said two sources close to the deal.
QIA/Brookfield’s final 350p cash offer is conditional on a minimum of 90% acceptances. But the bidders said in their offer announcement that they could lower the acceptance threshold if they were to acquire more than 50% of Songbird and were allowed three board seats in return.
Songbird has 11 board members and under its existing article of association, the four named major shareholders are able to appoint a maximum of three directors each based on their shareholdings. Simon Glick’s Glick Entities (25.9%) and Morgan Stanley Real Estate (8.5%) have three board seats each. Songbird’s other major investor – China Investment Corporation (15.8%) - has not appointed any directors.
QIA currently has three board seats on Songbird, but they would not be carried over under QIA/Brookfield’s ownership. Instead Songbird’s board would need to vote on whether to attribute QIA/Brookfield the three board seats it is asking for. QIA’s three current directors would not be able to vote based on a conflict of interest, said the sources.
The sources argued that of the 11 current board members, only the two independent directors representing free float shareholders could be entirely impartial. They also questioned whether six board members representing Simon Glick’s Glick Entities and Morgan Stanley Real Estate would be able to vote.
Major shareholders who might feel they would be better off if the deal did not go through could not be expected to act in the best interests of all shareholders, said the sources.
The question of impartiality would be likely to provoke debate among lawyers, the sources said, noting it is a question that should interest both major and minor shareholders who are concerned about the company’s future governance.
“The point is to avoid paying a premium price for shares and (in doing so) giving more control to those who didn’t tender,” said the first source.
According to the offer announcement, the bidder said it “would not wish to arrive at a situation where, despite Bidco acquiring more than 50% of Songbird, any one major shareholder, by not accepting the Songbird offer, could end up with its directors having veto rights over material decisions when today that Major Shareholder has no such veto rights.”
The first source said the bidder was only asking for representation on the board commensurate with its shareholding, in the event that its offer did reach over 50% acceptance.
But even before that question is asked, the QIA/Brookfield bid still needs at least one major shareholder to tender its shares in order for the offer to gain at least 50% acceptance. The entire free-float shareholder base of 21.1% combined with QIA’s existing 28.6% share comes up just short of 50% of Songbird’s shares.
So far minority shareholders representing 6.7% of Songbird shares have agreed to tender their shares.
The second source would not comment on whether discussions between the bidder and the major shareholders were already happening, but said final decisions were not expected until after the offer document was issued sometime before the end of December.
A minority shareholder with no direct knowledge of the major shareholders’ intentions thought Simon Glick would be least likely to tender his shares as his investment is believed to be “more personal” both financially and emotionally.
CIC and Morgan Stanley should be more financially motivated and would be well compensated by accepting, the shareholder speculated.
Songbird Estates issued an announcement last week denying media reports that major shareholders including Glick Entities and CIC had decided not to tender their shares while Morgan Stanley was opposed to the offer.
Songbird board has not formally rejected the 350p offer but has said the bid still undervalues the company. It said it had taken no decision on the bid and no guarantees had been made or sought from shareholders, despite Songbird’s board rejecting the first offer.
