Prime Makes Pitch To Bbc Investors

The Age

Monday October 6, 2008

Carolyn Cummins

PRIME Retirement and Aged Care Trust says its proposed merger with Babcock & Brown Communities (BBC) would create the country's largest owner of seniors accommodation.

Prime's offer document detailing its partial scrip offer, sent to BBC investors over the weekend, says a merger would also lead to a significant rerating of Prime and generate efficiencies between the two groups.

Prime sent out the document despite BBC's directors having opted to support an offer made by Lend Lease last week. BBC formally rejected Prime's proposal, saying the Lend Lease deal was the best for investors.

Lend Lease, which already owns 7.6% of BBC, declared its hand last week with an offer to buy the management of BBC from Babcock and Brown for $17.5 million, as well as offering investors a placement of shares and convertible notes.

Under the deal, worth $236.8million, which must be approved by BBC investors, Lend Lease would emerge with a 41% stake as well as management rights extending for another nine years generating about $60 million a year.

But Prime, in its offer document printed before the Lend Lease deal was made public, says its offer represents value for "your investment in BBC".

The document says the merger "would create Australia's largest senior living asset class business with 10,500 living units (about 12% of the market), 2300 aged-care beds and 5500 living units in the pipeline for completion in the next five years". "Total assets will be $4.3 billion," it says.

JP Morgan's property team said the Lend Lease offer, which represents about 68 a share to BBC investors, was a good starting point.

"But the key question ... is whether this proposal beats the very real internalise-and-go-it-alone option. The practical problems for BBC of cash flow (to drive development rollout) and lack of a buyer in the current market for its aged business means that the Lend Lease proposal could well stack up relative to internalising," the JP Morgan team said.

Merrill Lynch's property team said that given the sector was rationalising, strategically BBC provided economies of scale with Lend Lease's own Retirement by Design business and an increased share of an attractive market.

But Merrill Lynch added that the focus was also now on another aged-care operator, FKP, which recently ceased discussions with Lend Lease about a possible merger.

"Given the turmoil in credit markets, the scale of the deal is appropriate, leaving Lend Lease with ample funding capacity," the broker said. "Finally, through retaining BBC as a separate listed entity, Lend Lease has minimised its balance sheet exposure while earning attractive fees. On the downside, the quality of BBC's portfolio is not as high as FKP's and we remain cautious on near-term retirement earnings given the weakening residential sector

© 2008 The Age

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