Singapore’s ARA Asset Management this week announced its intention to extend a bid for a hostile takeover of ASX-listed Cromwell Property Group, marking the latest development in a more than two-year struggle for control of the Australian investment group.
Facing what it terms a lack of transparency concerning asset values as a result of COVID-19 and “antagonistic behavior” from Cromwell board members, ARA, which already is Cromwell’s largest shareholder with a 24 percent stake, says it intends to make a proportional off market takeover bid to acquire 29 percent of all Cromwell stapled securities that it does not already hold for A$0.90 per stapled security.
The take over comes after Cromwell has blocked attempts by ARA to obtain representation on the Australian firm’s board, with ARA Group CEO John Lim announcing that the company is “…seeking to increase its holding to protect its significant investment in Cromwell through a reinvigorated board with a clear proprietorial focus.”
ARA as White Knight
“ARA has been left with no choice but to pursue this course to try and restore value for the benefit of ARA and all security holders in Cromwell,” ARA’s Lim said in a press release. “We seek change based on our strong belief that the existing Cromwell strategy is failing and exposing our investment to unacceptable risks. This is magnified by poor cost control by management, at times inexcusable largesse, and weak corporate governance.”
ARA has alleged that Cromwell breached its fiduciary obligation to represent the best interests of all security holders — including those critical of the company’s recent performance.
Cromwell, which temporarily paused trading of its securities on the same day that ARA announced its bid, operates across Australia, New Zealand and ten countries in Europe, with A$11.2 billion ($8.7 million) assets under management.
ARA said that its offer represents a “certain and immediate” cash return while granting security holders continued participation in the upside from any turnaround. The company also described its proposal as providing liquidity in uncertain market conditions and as providing protection against the potential for dilutive capital raising by Cromwell, given the firm’s elevated gearing and its holdings of Polish retail assets amidst the pandemic.
Cromwell Asks Investors to Sit Tight
Cromwell issued a press release Monday that advised its stakeholders to “take no action” in relation to the ARA offer.
“Cromwell notes the unsolicited and opportunistic nature of the Proportional Offer and that the Proportional Offer is not an offer to acquire all securities held by security holders in Cromwell. In the interim, Cromwell will continue to operate and execute its business strategy in the ordinary course as previously flagged to the market on 4 June 2020,” the press release stated.
Cromwell Clocked Losses During Boom Times
ARA’s takeover bid comes after Cromwell’s fortunes have sagged in recent years with the company’s earnings per share having dropped each fiscal year from 2017 through 2019, despite simultaneous upward rental growth and capital appreciation in commercial real estate markets. The company also saw a material 13.1 percent reduction in distributions per security over the same period.
Analysts have questioned Cromwell’s use of shareholder funds to acquire European property fund manager Valad Europe for A$208 million in 2015 as well as an A$1 billion purchase of a portfolio of Polish shopping centres at the same time that Australia’s commercial property markets were enjoying record years.
“What is exceptionally disappointing is that so many individual Cromwell security holders placed their faith in the Board and management’s ability to restore wealth and the company fortunes, only to find their loyalty sadly misplaced,” Lim said in the press release.
ARA also pointed out that Cromwell’s corporate costs have increased by 48.3 percent, while the CEO’s statutory remuneration increased by 34.1 percent from the 2018 to the 2019 fiscal year.
Buying In Before Buying Out
ARA’s participation in Cromwell started in March 2018, when the company continued its global growth strategy by acquiring a 19.5 percent stake in the Aussie firm. That deal, which came just one week after ARA announced a new European investment platform carried with it voting rights equivalent to an 8.83 percent stake in Cromwell.
“Asia Pacific remains a focus for ARA even as the company expands its footprint globally,” Lim previously told Mingtandi in a statement. “We entered Australia in 2015 and have been steadily increasing our investments in the market over the last three years.”
Since founding the company with backing from Hong Kong tycoon Li Ka-shing in 2002, Lim has transformed ARA into one of Asia’s leading REIT and private equity real estate managers. The company manages over 90 properties totalling 57 million square feet in Asia Pacific and has around 1,300 staff in eight countries.