Barbarians pushing boundaries at Asian gates

Spring Real Estate Investment Trust

11/10/2018 03:16

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Alec Macfarlane
    HONG KONG, Oct 11 (Reuters Breakingviews) - A handful of
uncharacteristically aggressive private equity deals in Asia
threatens to upend a tradition of takeover civility.
    Hong Kong-based PAG, a buyout shop run by former TPG
dealmaker Shan Weijian, is taking its roughly $700 million offer
for Spring Real Estate Investment Trust  1426.HK  directly to
unitholders. The decision follows many fighting words, including
calls to oust the manager overseeing the eclectic portfolio of
Beijing office buildings and property leased to Kwik-Fit car
mechanics in Britain. The 62 percent premium on offer has been
shunned by management as the company tries to buy a mall in
southern China. 
    Likewise, Blackstone’s  BX.N  $2.4 billion unsolicited
approach for Australia’s Investa Office Fund  IOF.AX  has turned
into an ugly fight. The U.S. investment firm has its own
property manager Down Under, so it’s a safe bet it would oust
Investa’s, Investa Commercial Property Fund. The fund also
happens to be Investa’s biggest shareholder, though, and amid
the ongoing bidding war it just sold half its stake to rival
suitor Oxford Properties, a Canadian investor and landlord. 
    Such confrontations are rare in private equity and in
Asia-Pacific. Unwanted buyout attempts in the region have
reached a record $10 billion in 2018, according to research firm
Dealogic. That’s a higher volume than has been attempted in the
United States or Europe in any single year since the financial
crisis. 
    Ever since KKR’s  KKR.N  hostile takeover of RJR Nabisco in
1989, famously chronicled in the bestseller “Barbarians at the
Gate”, buyout barons have been trying to shake off the
belligerent predator image. They have favoured the friendlier
approach, often backing existing management teams at their
targets. Many investors in private equity, including big pension
funds, typically shy away from conflict; some limited-partner
agreements even prevent hostile bids.
    In Asia, though, where founders have been reluctant to cede
control of their companies, assertive measures may be necessary.
What’s more, there is nearly $250 billion of so-called dry
powder stock-piled around the continent, reckons data provider
Preqin. That may amount to a whopping three-quarters of a
trillion in purchasing power in a market notoriously difficult
for buyouts. It isn’t hard to imagine frustrations trying to
deploy such sums turning into greater belligerence.
    On Twitter https://twitter.com/AlecMac11

    CONTEXT NEWS
    - Hong Kong-based private equity firm PAG on Oct. 2
initiated an unsolicited HK$5.2 billion ($669 million) takeover
bid for Spring Real Estate Investment Trust. 
    - A firm associated with PAG Real Estate offered HK$4.85 for
each unit of Spring REIT, a 61.7 percent premium to the HK$3
price where they had been trading on Sept. 24, the last date
before the offer was unveiled.
    - Spring REIT is trying to acquire a shopping mall in
China’s Guangdong province. PAG says that the deal will
significantly dilute minority unit-holders and increase the
relative ownership of insiders. PAG said its offer will be
terminated if the Chinese mall deal goes forward. 
    - PAG said on Sept. 26 that Spring REIT’s manager should be
replaced and a strategic review conducted to address the trust’s
“continued under-performance”. It tried to remove the manager
last year, but the proposal was rejected by the company’s
unitholders at an extraordinary general meeting in November. 
    - For previous columns by the author, Reuters customers can
click on  MAC/ 
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HKEX announcement    http://www.hkexnews.hk/listedco/listconews/sehk/2018/1001/LTN20181001075.PDF
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PAG launches $671 million unsolicited takeover bid for Spring
REIT     urn:newsml:reuters.com:*:nL4N1WC2AH
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 (Editing by Jeffrey Goldfarb and Sharon Lam)
 ((alec.macfarlane@thomsonreuters.com; Reuters Messaging:
alec.macfarlane.thomsonreuters.com@reuters.net))