Eureka share trades prompt speculation of rival bidder to Aspen

The takeover battle for affordable accommodation developer Eureka is heating up with an unknown party, appearing to build up a stake on the register.

Aspen Group's lifestyle asset Sweetwater Grove. Picture: Supplied

The takeover battle for affordable accommodation developer Eureka is heating up with an unknown party, appearing to build up a stake on the register, while rival group Aspen is preparing a formal merger bid to create a $500m entity.

The Australian can reveal that an 18 million parcel of shares traded in the stock at 53.5c on Tuesday, following a trade last Friday when 8 million shares went through at 50c.

The move – potentially by a wealthy individual – reflects the big interest in housing stocks this year, with the race on to build up an institutional sized player in affordable housing.

Aspen kicked off property merger plays this year by proposing a bid for Eureka in January that would create an enlarged company that it says would help transform the industry.

But the contest for Eureka is likely to become more active after the two lines of shares were traded, and large existing investors were offered a premium for their stock via broker Ord Minnett.

Aspen’s bid for Eureka is scrip-based, and its shareholders would receive 0.26 shares in Aspen for each of their shares. But the offer price is effectively below Eureka’s trading price, and the large share trades.

Ord Minnett had been ringing around stockholders testing their interest in selling stock at more than 50c per share on Monday before the larger trade went through on Tuesday.

Industry players had suggested either an arbitrage player seeking to get a position before Aspen came back with a higher offer, or, as appears more likely, potential strategic interest in the business from another investor.

If Aspen’s plan went ahead, the merged group would initially have book equity of about $500m, more than three times the current scale of Eureka, and also enlarge Aspen.

But Aspen’s offer is for a nil-premium merger as it said its both its own shares and Eureka’s had been shifted by the potential for a takeover offer since it took a 13.7 per cent stake in Eureka in December 2022.

Eureka this month unveiled a 19 per cent increase in underlying earnings before interest, taxes, depreciation, and amortisation to $7.1m in the first half, driven by organic growth in existing villages, acquisitions completed in the prior period and improved maintainable earnings.

Eureka also set up a new wholesale property fund, Eureka Villages WA Fund, that acquired six villages in WA last December for $44m.

Eureka executive chairman, Murray Boyte, said when releasing the result last week that it built on the momentum that it established in the last financial year, reflecting the progress towards achieving institutional scale in the specialised affordable seniors build-to-rent market.

Eureka has said Aspen’s offer is inadequate and undervalues the company, as the price is either a discount or no meaningful premium over Eureka’s share price at any time in the past 12 months. It said the bid also undervalues the underlying strength of Eureka’s business model and its future growth potential.

Aspen already provides quality accommodation on budget terms for residential, lifestyle and park living. Eureka focuses on affordable rental accommodation for independent seniors and disability pensioners, which is part of Aspen’s target market, though there are differences between the companies.

The success of the takeover will partly hinge on fund manager Cooper Investors, which has a 19 per cent stake in the target and about 10 per cent of Aspen.

Broker CLSA said after the result that it expected Eureka to trade on M&A expectations following Aspen, announcing in January its intention to make an off-market takeover bid and believes Aspen could pay 60c per share and still make the transaction accretive.