Prime Sees Synergies In Bbc Takeover

Prime Sees Synergies In Bbc Takeover

Sydney Morning Herald

Monday October 6, 2008

Carolyn Cummins Commercial Property Editor

THE Prime Retirement & Aged Care Trust says its proposed merger with Babcock & Brown Communities 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 re-rating of Prime and generate a number of efficiencies between the two groups.

Prime sent 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 owns 7.6 per cent of BBC, declared its hand last week with an offer to buy out the manager of BBC - Babcock & Brown - for $17.5 million, as well as offering investors a placement of shares and convertible notes.

Under the total deal, worth $236.8 million, which must be approved by BBC investors, Lend Lease would emerge with a 41 per cent 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, said the offer represented value for "your investment in BBC".

"[The merger] would create Australia's largest senior living asset class business with 10,500 living units (about 12 per cent of the market); 2300 aged-care beds and 5500 living units in the pipeline for completion in the next five years," the document says.

"Total assets will be $4.3 billion, with geographic diversity in all mainland Australian states and five villages with nearly 1000 living units in New Zealand."

JP Morgan's property team said the Lend Lease offer, which represents about 68c 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 broker said.

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

But the analysts said the focus was also 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. Finally, through retaining BBC as a separate listed entity, Lend Lease has minimised its balance sheet exposure whilst earning attractive fees," Merrill Lynch said.