AFTER knocking back Lend Lease's $5.00 per security offer in May as "undervalued", FKP has surprised its investors by making a $1.50 placement to Stockland and Mulpha Australia.
FKP further shocked investors revealing it can no longer maintain specific profit guidance for the 2009 fiscal year and it won’t be making a distribution instead it will retain the majority of cash earnings to retire debt and fund working capital requirements.
It was not the surprise investors were prepared for, FKP resumed trading just after midday and its shares plunged 24.5 cents or 16.3% to close at a new low of $1.25. Meanwhile Stockland shares jumped 19 cents or 4% to close at $4.90.
In a deal that is win win for Stockland, FKP will sell a 5% stake at $2.00 per security and also undertake a capital raising through a placement at $1.50 per security to Stockland and Mulpha
FKP chief executive Peter Brown said the deal reflects the underlying value of FKP.
But it was only four months ago when the FKP board unanimously agreed that Lend Lease’s $5.00 per security “substantially undervalues FKP. Therefore the proposal is not one that the board can recommend,”
“The LLC proposal is opportunistic and does not reflect FKP’s underlying value and future prospects. FKP is in a strong financial position and is set to deliver strong earnings growth from FY09 onwards,” FKP Chairman Ben Macdonald said at the time.
But times have changed, earlier this month FKP scrapped its FY09 earnings growth forecast and yesterday warned it can no longer maintain its profit guidance for the year ahead.
Under the terms of the deal, Stockland will pay $28 million for a 5% interest in FKP. The issue price represents a 33% premium to FKP’s closing price as at October 10 2008.
In addition, Stockland has nominated its residential business chief executive Dennis Hickey to the board of FKP and FKP has signed an exclusive agreement to give Stockland first preferences over its retirement village assets. FKP yesterday confirmed that the company is undertaking a strategic review to divide to cut up and sell its retirement village business.
FKP will also conduct an accelerated non-renounceable entitlement offer to raise up to $150 million. FKP will issue five new securities for every 14 securities held at a fixed price of $1.50, which will result in the issue of up to approximately 100 million securities.
Not long along, on September 24 when FKP shares were trading at $4.98 – the placement would have raised $498 million.
Mulpha Australia Limited, FKP’s largest security holder, and Stockland will take up 35 million and 34 million securities respectively (including their pro rata entitlements), raising a minimum of $104 million.
The number of securities allocated to Mulpha and Stockland may be scaled back subject to the level of sub scri ptions received from other FKP security holders. Combined, the placement and entitlement offer will raise a minimum of $132 million for FKP.
Brown said these funds will be used to strengthen the balance sheet, reducing pro forma gearing as at June 30 2008, to approximately 35%.
“This places FKP in a strong position in light of the current volatility in debt and equity markets worldwide. The funds raised will also assist in funding FKP’s committed development pipeline including developments such as
Meanwhile, Brown said group will conduct a strategic review of its business including exploring further opportunities with Stockland, particularly in relation to FKP’s retirement assets.
Under the sub scri ption agreement, FKP has granted Stockland a first right to acquire, and a two month period of exclusivity in relation to a purchase of, FKP’s retirement assets.
This potential transaction could include a re-structure or de-merger of FKP’s retirement business.
Stockland’s managing director Matthew Quinn said the acquisition of a stake in FKP and the exclusive dealing period in respect of the retirement assets is in line with the group’s strategy to grow exposure to the retirement living sector.
He added the acquisition of the stake in FKP will be funded from existing debt facilities and will increase the gearing ratio by 0.4%. The transaction will have a minimal dilutive impact on FY09 EPS.
Earlier this week Stockland also acquired a 14.3% strategic stake in Aevum, the largest for-profit participant in the NSW retirement living market.
Australian Property Journal
