Argosy’s $20m payout to manager deemed ‘fair’
Argosy Property Trust’s plan to buy out the trust’s management contract with OnePath for $20 million has been labeled fair and in the best interests of unit holders, according to an independent expert report.
And Grant Samuel’s report supports the view of Argosy’s independent directors that internalising the management contract should be done before any merger proposals with other trusts such as DNZ be considered.
Grant Samuel says the terms and conditions of the proposed internalisation are fair to Argosy unit holders not associated with the manager, and the proposal is in the best interests of unit holders.
The $20 million payment to OnePath is at the lower end of Grant Samuel’s value range of between $19.7 million and $23.7 million based on the “estimated” price a third party purchaser would pay to secure the management rights today.
Grant Samuel notes that the value to the trust of internalising management is significantly greater than the $20 million being paid.
This is due to annual cost savings after interest of approximately $2.9 million per annum, Grant Samuel says, and also "due to the perpetual nature of the internalisation when compared with the risk of removal associated with external management."
“The proposed internalisation is earnings accretive to the Trust and should have a positive impact on the unit price of the Trust to the extent this has not already been factored in to the current unit price,” Grant Samuel says in its report.
“The Proposed Internalisation will also improve the control unit holders have over the Trust.”
Argosy initially agreed to pay OnePath – a subsidiary of ANZ – $32.5 million for the management rights but slashed $12.5 million off the price following opposition to the plan from institutional unit holders.
Those holders, including ACC, have said the $20 million price tag is still too high.
Grant Samuel says there are significant benefits to be gained from merging Argosy with another listed property vehicle but there is no time pressure to do so.
Grant Samuel says the interests of Argosy unit holders are best served by internalising management first, then determining if a merger with DNZ or another party is a desirable outcome.
This view is shared by Argosy’s independent directors who, while rejecting DNZ at this time, are keeping an open mind to a future merger proposal.
“Based on the information provided to date there appears to be no reason to conclude whether DNZ is, or is not, the ideal merger partner or if, indeed, a merger is desirable.
From Argosy Unit Holders’ perspective, achieving the internalisation on the best terms should be the current priority. There is no time pressure on the Trust to merge at this time."
Grant Samuel also notes that a merger of DNZ and Argosy may result in tax losses in both DNZ and Argosy being lost.
It understands the tax benefit lost could be approximately $6 million to a combined entity.
DNZ has advised that it wants to change two resolutions that are to be put Argosy unit holders at the trust's annual meeting at the end of the month.
The company is now calling for an independent adviser to be appointed to reassess DNZ's merger proposal, and advise whether it is in the interests of unit holders to internalise the trust's management function.