Investors didn’t have to wait long for the first takeover battle of the year. While previous property takeovers have focused on smaller real estate investment trusts (Reits), this time the sharks are hitting big.
News of US private equity firm KKR’s 48p per share bid for Assura (AGR) broke on 14 February. The board unanimously rejected it and the following Monday a co-bidder, the UK’s largest private pension fund, the Universities Superannuation Scheme, dropped out, leaving a funding hole. With the clock ticking, there are two questions in play: will KKR make another formal offer and will the offer be reasonable?
When it comes to the fairness of the bid, opinion is divided. Tom Furlong, portfolio manager at CCLA, which holds a 4.7 per cent stake in the healthcare Reit, is urging the board to engage.
At the other end of the spectrum Jon Stewart, a manager at Baillie Gifford (which has a 0.94 per cent stake), said the offer undervalued the company’s net tangible asset value of 49.4p but “also fails to reflect the hidden value within Assura’s balance sheet.” He added that the Reit’s low-cost, long-term debt was worth “a further £179mn to shareholders.” Assura has a weighted average debt maturity of 4.9 years and a weighted average interest rate of 2.93 per cent.
Romney Fox, fund manager at Abrdn (2.9 per cent stake), added: “Assura should not rush into the arms of a suitor other than at a compelling price.”
Other investors look to be voting with their feet. Rathbones (4.7 per cent) has sold around 25mn worth of shares, which implies it believes the short-term bump in share price – Assura was previously trading at around 37p – is worth taking profit on. It also suggests it believes the deal has a low probability of going ahead. Rathbones declined to comment.
When it comes to working out a fair price, research analysts at Green Street put this at 49p, just below Assura’s net tangible asset value. Shore Capital said 48p “looks fair”, while Panmure Liberum, which has a 51p price target, said the “price must be improved upon from here to support any deal”.
The other question is what Assura is worth to KKR.
The private equity shop is trying to buy the company for its infrastructure fund, which has a low cost of capital. While we have not seen the model KKR used to value Assura, private equity buyers generally prioritise future cash flows. We also note that they often seek to grow platforms via higher debt levels than public markets are willing to accept. However, USS dropping out means KKR will need to boost its funds or find another investor. If KKR does walk away, Assura’s management team will be under pressure to improve the share price to the level of the bid, which will be a tall order.
