DNZ has more to gain – analyst

Listed DNZ Property still has more to gain from a merger with Argosy, according to Forsyth Barr analyst Jeremy Simpson.

He was considering the effect of external manager OnePath’s latest proposal to accept a lower cost of internalising listed Argosy’s management contract from the $32.5 million initially sought to $20 million.

“What is clear, based on our numbers, is that DNZ has a lot to gain from a merger and can pay a premium and still make the transaction accretive for DNZ unitholders. In our view the Argosy portfolio looks more appealing strategically and warrants a premium.

“Argosy is considerably larger than DNZ and has a much higher weighting to both Auckland and to industrial property, which is a tightly held and well-positioned asset class in Auckland. Unless Argosy investors were given a premium price for their portfolio when the merger pricing is struck, it looks as if DNZ shareholders look have more to gain. Argosy playing hard to get is not necessarily a bad thing in terms of maximising the exchange ratio in any merger or takeover.”

Argosy’s larger portfolio of more than $900 million of properties is 74% weighted to Auckland and 97% occupied. Argosy has sold smaller assets and restructured its joint venture exposures but its gearing is the highest in the sector, Mr Simpson said.

“Argosy is in play and potentially has upside closer to its net tangible asset value as a result of a possible merger with DNZ and we remain with a positive investment view.”

Late last week DNZ filed papers with the High Court in Auckland following the failure by the external manager owned by OnePath to call a special meeting of unitholders, following a request from DNZ and other concerned unitholders.

DNZ said that under clause 28.1 of the Argosy Property trust deed and/or s12 (1)(d) of the Unit Trusts Act 1960, the manager is required to hold a special meeting following a request by more than 10% of unit holders.

DNZ chairman Tim Storey accused OnePath of failing to put information to all unitholders.

Meanwhile, Vital Healthcare is involved in a similar argument over OnePath’s efforts to extract a $14 million payment to internalise management.

Investors Accident Compensation Corporation, Westpac Banking Corporation and BT Private Selection and The Guardians of New Zealand Superannuation (which together hold approximately 15% of the units in the trust) have asked the trustee of the company to convene a meeting of unitholders to consider resolutions relating to the manager.

The independent directors of the manager of both trusts have said they are continuing to negotiate a price with OnePath but they support the process under way. OnePath’s inernalisation would see the current management teams remain but employed directly by the trusts.