Stockland wins approval to acquire $1.3bn housing estate portfolio as competition watchdog signs off

The competition regulator has approved the deal on the proviso that a key NSW housing estate is sold off to address its concerns.

Lendlease CEO Tony Lombardo. Picture: Jane Dempster/The Australian

The competition regulator has cleared developer Lendlease’s drawn-out $1.3bn sale of 12 housing estates to listed rival Stockland and Thai-owned group Supalai, with the move expected to spark earning upgrades for the buyer.

The Australian Competition & Consumer Commission, which had raised competitive concerns about the deal, has accepted a court-enforceable undertaking from Stockland to divest the Forest Reach housing project in the Illawarra region of NSW.

The move was foreshadowed by The Australian and will reshape the country’s housing development market. Lendlease has 16 housing estate projects in NSW, Queensland, Victoria, and Western Australia, 12 of which Stockland and Supalai are proposing to acquire.

The ACCC said it considered that the sale addressed the competition issues that would arise from Stockland owning both Forest Reach and having an interest in Lendlease’s nearby Calderwood Valley project as a result of the proposed acquisition. The deal was also unlikely to cause serious competition concerns in other areas, the ACCC said.

“Without the divestment, the proposed acquisition would bring together the two largest masterplanned community projects in the already concentrated Illawarra market,” ACCC commissioner Philip Williams said.

“This could have resulted in increased prices, delayed supply, or reduced quality of housing lots in the Illawarra region, to the detriment of prospective homeowners.”

Lendlease, under chief executive Tony Lombardo, has dramatically recast its strategy to become a smaller, more focused company after pressure from activist shareholders.

It told investors the sale remained subject to conditions precedent, including third-party consents and Foreign Investment Review Board approval, and subject to transaction and other completion adjustments. Completion is anticipated in the second quarter of this financial year.

Stockland said it would provide an update on its earnings guidance once all approvals had been obtained.

The deal is one of the largest with chief executive Tarun Gupta at the helm and sets Stockland up for a housing recovery.

Citi analyst Suraj Nebhani said it was a positive for both companies. Stockland shares added 7c to $5.36 on the ASX late Thursday morning, while Lendlease shares dipped 4.5c to $7.

Mr Nebhani said that the approval should result in Stockland’s earnings guidance being upgraded, as the transaction was about 4 per cent accretive on an annualised basis, resulting in stronger growth in the next financial year.

Lendlease had expected to receive $1.3bn from the deal, which combined with other sales would confirm $1.9bn of sales out of the $2.8bn targeted to be complete within 12 months of its May strategy update, when it said it would exit the bulk of international ­development.

“This would show strong progress on asset sales to date, and sets up Lendlease well to be able to execute on strategy. Out of the $2.8bn targeted, Lendlease currently has a further $900m of assets on market, and once these are progressed, Lendlease may be in a position to execute on the up to $500m of buybacks,” Mr Nebhani said.

Lendlease this month finalised the sale of its US east coast construction operations to US firm Consigli Building, on terms that were broadly neutral in terms of cash, capital and profit over a two-year period.

Lendlease chief executive Tony Lombardo said after that deal the company was “taking decisive action with the objective to become less complex, more ­focused, and ultimately more ­profitable”.

He said the company was focused on lowering its risk profile, and was now turning its attention to selling its British construction business, with a process just beginning. It is also looking to sell a retail asset in Malaysia, a seniors village in China and its remaining stake in its retirement business.

Gersh Investment Partners executive chairman, Joseph Gersh, welcomed the announcement by the ACCC that the proposed acquisition by Stockland and Supalai of the housing estates was unlikely to cause serious competition concern. The firm advised Supalai on the process.

“The transaction is a major milestone in Supalai’s Australian business, potentially taking Supalai’s total investment in Australia to well in excess of $850m across more than 25 projects with leading Australian residential real estate developers,” Mr Gersh said.