Dexus raises stakes on CPA

THE GPT Group is tipped to raise the stakes in the battle for the Commonwealth Property Office Fund .

Dexus chief executive Darren Steinberg says, `the consortium is confident of CPA's value and its view of the opp...

THE GPT Group is tipped to raise the stakes in the battle for the Commonwealth Property Office Fund after yesterday's highly anticipated move by Dexus Property Group and its partner, the Canada Pension Plan Investment Board, to trump their earlier bid for the target, sweetening the offer to $2.98 billion.

The contest for the office fund, which has the ticker code CPA, could end with its shareholders walking away with as much as $1.30 a security, in a deal in which the winning party would spend more than $3bn.

GPT Group has been tipped by some analysts to thwart the Dexus play. "We expect GPT to come over the top," Moelis & Co traders told clients in a note yesterday. "They have already had two failed bids this year, so they won't want a third. The alternative is that they cut a deal with Dexus to split up the assets between them."

The potential for a carve-up of CPA's $3.7bn portfolio is gaining currency and in its revised offer, Dexus chief executive Darren Steinberg held out an olive branch to GPT by offering to sell down its interest in two Melbourne properties worth $450 million to the GPT Wholesale Office Fund (GWOF), should it be the successful suitor.

The latest proposal will see Dexus and CPPIB put an additional $130m of cash on the table.

CPA shareholders would receive 77.45c and 0.4516 Dexus securities for every CPA share, valuing the offer at $1.27 a security.

The consortium initially offered 68c cash and 0.4516 securities in October, equating to $1.15 a share, then raised the price last month to the equivalent of $1.21 a security, when GPT came forward with an offer of $1.235 per unit, which involved GWOF taking $1.1bn worth of the assets subject to winning 90 per cent of the target's register.

The Dexus consortium has changed its proposal from a scheme of arrangement, which requires a 75 per cent level of acceptance, to a takeover bid, with no minimum acceptance.

Although its numbers included the payment of a $41m fee to the bank for CPA's management rights, analysts tipped that Dexus might not end up paying that sum.

The Commonwealth Bank yesterday said it was continuing to work with Dexus on the chance it ended up running the office trust.

Yesterday, GPT appeared unperturbed by the Dexus offer to carve off the two office assets, issuing a statement saying "we will be reviewing their proposal".

Dexus's Mr Steinberg said the purchase of CPA was highly strategic for his bidding consortium.

"The consortium is confident of CPA's value and its view of the opportunities the CPA portfolio presents under Dexus's management," he said.

"Based on the discussions with Dexus shareholders on the first proposal, we believe it will be well received by Dexus shareholders."

Dexus yesterday said that the offer was 3.3 per cent earnings accretive for the 2014 financial year from July and 1 per cent from about February.

Under the revised consortium deal, which followed due diligence on CPA, buildings at 750 Collins Street and a 50 per cent interest in Freshwater Place, both in Melbourne, would be offered to GWOF.

The net tangible assets for CPA at June was $1.15 per security, while under the current deal, Dexus's NTA would drop to just under $1.03 per security.

The move came after Dexus on Tuesday lifted its earnings guidance, announcing its funds from operations would increase 7 per cent for the 2014 financial year.

CPA became subject to a takeover bid after the Commonwealth Bank flagged plans in July to hive off its $20bn property platform that sits within its Colonial First State Global Asset Management subsidiary.

Following the move, Dexus secured a 15 per cent stake in CPA before announcing its offer for the entire fund in October.

Dexus securities closed down 0.5c at $1.01, while CPA units closed 2.5c higher at $1.275. GPT securities closed 3c lower at $3.39.