That didn’t take long, did it? Just a few weeks after the ink dried on RCU’s capital raising, Greg Woolley has lobbed in a low-ball takeover offer for the trust at $0.46 per unit.
The bidder’s statement is quite entertaining. We’re told the offer price ‘represents and internal rate of return of 61.8% with respect to those units acquired’ in the capital raising and ‘an internal rate of return of 92.3% with respect to those RCU units acquired’ through the sell down facility. In my business, ASIC doesn’t like people annualising short term returns. Rightfully so, when any miniscule short term return looks impressive annualised. It’s also Betrand Russell’s birthday today. And that has as much relevance to the bid price as your IRRs.
The one good thing about the debacle of the past year is that RCU’s is only left with three valuable assets. Woolley’s bidder’s statement correctly highlights that it’s a difficult market for selling assets. But two of RCU’s main assets are in a sweet spot. The RSA Security Campus is leased for 12 years with a guarantee from a NYSE-listed, A-rated corporate. Not surprisingly with 10-year government bond rates at 1.8%, single tenant assets with long leases and good credit are in high demand. RCU’s book value, US$99m including tenant improvements, is very realistic.
Then there are the GSA assets, a portfolio of US-government leased assets with a weighted average lease expiry of more than 7 years, on the books at an average capitalisation rate of 8%. Again, buying Government leased assets yielding 8%, when the government bond rate is 6% lower than that, seems a pretty attractive deal to me.
RCU’s 35% share of the joint venture is on the books at $US38m. If they owned the assets outright, they’d get book value. Government Properties (NSYE:GOV) owns a portfolio of very similar assets and trades at 1.2 times NTA. Let’s knock of $5m for the joint venture discount and call it $US33m.
RCU’s net debt is $US75m, so the sale of these two assets alone at anything like current book value would enable the trust to return untiholders $US57m, or US$0.56 per unit. The way things are going, that could be worth more in Aussie dollars.
We would be left with the FedEx Terminal (book value $US22.5m) and the Pfingsten Rd asset (book value $US16.7m). Granted, these aren’t going to be easy to sell. But debt-free and with US$0.56 in our pockets, we could afford to be a little more patient. And a 20% hair cut would still return us an additional $0.30.
So what’s Woolley playing at here? He knows we know the value of the assets and aren’t going to sell at $0.46. After yesterday’s trading, where bidders were well in excess of the $0.46 bid price, he knows everyone else knows that as well.
But this will just be a first shot. They hadn’t even bothered to fill in the dates in the bidder’s statement. Woolley will look for the weakest point in the line of unitholders. At some point, there won’t be enough in it for the arbitrageurs to climb over the top of his bid and there will be enough unitholders prepared to sell such that the rest of us will be scared into submission. The section in the bidder’s statement about his negotiations over the management rights seemed strategically placed to add to our fears.
If he can get to anything over 40%, the risk for everyone else in not accepting the offer becomes unbearable.
It’s a smart strategy but I’m guessing most of those left on the RCU register, after two capital raisings and a year of disasters, are fairly sophisticated and know the value of what they own. I don’t think anyone is expecting full value. But, one way or another, we’re going to do a lot better than this low-ball bid.
25 thoughts on “Battle lines form at RCU”
Sounds like good news on the internalisation of the responsible entity. Lets hope that the new board isnt full of pro-Woolley people, and that they can get on with the business of unlocking value for shareholders. Do you think this is progress Steve, or do we need to see who the Board is before getting too cheerful?
A pity that somebody saw fit to panic sell shares last week – about 1m ended up in Woolleýs hands when the over-bidders were temporarily off guard.
Internalisation ? Maybe I’ve got this wrong but isn’t it more the case that Andrew Saunders (the Investment Manager) has bought back what he had before ? I can’t see where it states that RCU (the Trust) is gaining control of the RE. The RE rights are being sold back to ReCap, the parent company of the Investment Manager. If ReCap is controlled by RCU (?) then all’s well & good. If it’s controlled by Andrew Saunders (?) who originally sold the RE rights to the Trust Company then there could be problems….perhaps the mooted control of the RE as alluded to by Woolley in the Bidders Statement has more teeth than first imagined. That would be a cause for concern.
It’s definitely ReCap (the manager) buying the RE, not the trust.
That’s rather bad news then. I’m not sure we want Saunders influence to get any greater given the events of the last 12 mths. To make things worse, another 1m shares have been traded into Woolley’s bid this morning – looks like one of the bigger holders is giving in…..
Everybody knows there is money there, but, is there any for the shareholders ?
We are dealt with this hand, how do we play it ?
If we play dead, Greg Woolley will eventually get his 40%, what will happen to the shareholders who refuse to sell ?
We are in a hostage dilemma.
Surely we need to have some sort of action plan re RCU and the sooner the better.Steve your thoughts would be greatly appreciated
I,like you, would love some kind of collective action. I am sure Steve is very aware of this. However the matter of acting in concert/ as associates/ collectively would appear complex legally speaking. I looked up the ASIC web site out of interest.
I have cut and pasted a following link which examines, for example, the rules for institutions acting collectively. I am no lawyer but on first reading there are clear provisions by which institutional investors can and cannot act in concert. Investors acting in concert would have to be very careful not to breach these provisions.
I am sure Steve is aware of that.
Given the public nature of this blog it would also seem unwise for him to publish any such plans in this format as it could be telegraphing ones intentions to the opposition!
I also noted those share movements. 1st June 904,563 of the 1,671,967 shares sold on 1st June went to Mr Woolley. Mind you 767,404 were bought by another buyer/ buyers. Similarly on 6th June 1,177,929 of the 1,908,374 were obtained by the bidder.
Time will tell if your assumption about “one of the bigger holders” is giving in or not!
Firstly, thanks for the II blog. I enjoy it and find the comments by Steve and the gang and all the participants very insitefull.
I have watched this RCU saga unfolding and don’t like what I see.
I was a smallish shareholder in RCU until yestertday and have decided to sell all my shares.
It seems that Mr Wooley is well on his way to control… if he isn’t even already there. He has increased his holding to 31per cent and you would have to assume he has the support of some other shareholders. I’m told that the bid hasn’t even officially opened yet and his shareholding has already started to increase again. If Steve and Pak believe that at 40per cent shareholding for Wooley, everyone else would be silly not to sell, I’m sort of suprised everyone else is still hanging on.
If he gets control, he probably won’t need to buy anymore shares, will shut his bid and all other shareholders will be left in a minority position and there will be no exits at anything like 46c share.
I don’t fully understand the whole recap acquisition, but hasn’t Wooley already said in his bidders statement that he may buy the manager. If the manager now has the RE, which is the Board??, won’t he doubly be in control by being able to appoint the Board?
Given the alternative of staying in a company which has huge debt, is appalingly managed and has a basicaly controlling shareholder who will probably own the manager, I took what I feel is the only alternative not to find myself in a very bad position very soon. I’ll put this one down to the inevitable mistakes we all make.
Could be some funny business going on to deliberately sell to Woolley because any sensible seller would’ve put them on at 46.5c and waited for the arbitrageurs to take them – esp with those 1m+ parcels
I fully understand people wanting to sell shares in RCU esp for tax reasons at this time of year, but there’s no need to accept the Woolley offer or panic sell at 46c as there are big buyers on market at 46.5c (and higher) if sellers just place their orders above 46c and have a bit of patience for an hour or two.
If Woolley is going to end up controlling RCU, the rest of us want to be paid a proper price for it.
It’s also worth pointing out that Woolley can’t pull the bid – it’s unconditional. So even if you want to sell, you might as well hang around until the last moment to see if there is a better offer.
I think the RE’s market update was, to say the least, timely. We should all remember that the bid does undervalue RCU units by 55% and is therefore a significant undervaluation – and hence why the bidder is so keen to snatch it at such a low ball offer.
As that statement points out – there is time to review the expert opinion and target’s statement before making any decisions.
I was pondering a few scenarios which might eventuate to release greater value.
Another bidder might bid
The RE might take a decision, in the interests of all shareholders, to wind up the trust in an orderely fashion and thereby release a truer reflection of its value.
A coalition of existing shareholders might make a counter bid
An amalgam of the sxecond and third option
The Bidder might increase the offer
Regarding the “unconditional” nature of the bid. I was reviewing the bidders statement in full earlier this morning. It did not leave me with the impression that it was unconditional per se. Sections 8:10 through 8:14 deal with “The Condition” as laid out in sec 8:10 complete with numerous conditional triggers one such trigger being
(i) RCU or a Subsidiary resolves to be wound up;
Section 8:14 deals specifically with the “withdrawl of the Offer”…so not sure how the offer can be “unconditional” as decribed in your post!
Also of interest is that if within the last 7 days of the offer period, there is a variation to the bid price or BidCo’s ownership exceeds 50% there is an automatic extension to the offer period by 14 days (8.3.d)