I have 2.6m LLP and have already voted against the Scheme.Before...

I have 2.6m LLP and have already voted against the Scheme.

Before considering how you should vote please note the following:

According to Note 7(b) of the 2009 financial statements (released only a few months ago) the Directors of LLP undertook a detailed impairment review to ascertain the value of LLP's assets as at 30 June 2009. The notes to these accounts state that a further impairment review was undertaken prior to signing off the accounts. Based on this review the Directors signed off the accounts showing a net asset figure of some 55 cents. This implies that the Directors believed the value of LLP was at least 55 cents per share (if they didn't believe this then they shouldn't have signed off the accounts or the assets should have been written down). Given the above how can the independent directors recommend an ofer price of only 31 cents?

Deloittes valuation of LLP (post the Lend Lease transactions) in their report dated 28-Nov-08 was 35 to 56 cents per share (See pg 51 of their IER). Despite the fact that equity markets have surged some 50% since that time their current valuation is only 28 to 38 cents! This reduction has not been explained.

Deloittes current low valuation of the Retirement Living Business (refer pg 42 of the current IER)is $675m. This compares to NTA of $669m and therefore implies virtually no goodwill (based on reported NTA). However, this business clearly has significant goodwill because the NTA is calculated after deducting some $1,576 million in resident loans. Pg 58 of the 2009 accounts states that "resident loans are non-interest bearing and are repayable out of amounts paid by the incoming residents". In my view the present value of the resident loan liability is significantly less than the reported liability [interest free loans are very hard to come by these days!]. Thus the value of this business should be assessed above its reported NTA. Had Deloittes adopted the net asset value of this business ($759m -see pg 42 of current Deloitte report- being presumably the carrying value in the accounts post the impairment review) and made no other adjustments to their valuation, their LOW value of LLP per share would have been 36.7 cents per LLP security rather than 28 cents per security [being $759 less $675m divided by 966.3m securities. On this basis Deloittes would have had to conclude that the Scheme consideration was NOT FAIR.

Deloittes state on pg 36 of their latest report that they developed their own long-term discounted cash flow models "Based on the Fund Model and the Asset Models". On page 35 of their latest report they state that both the Fund Model and the Asset Models were provided by the management of LLP. However, Lend Lease are the managers of LLP! Accordingly how reliable are these forecasts in the context of a bid from Lend Lease?

In fact pg 35 of Deloittes report states that "the Fund Model (with respect to retirement villages) represents LLP management's best estimate of the cash flows to be generated in the near-term for each facility which may include deviations expected to occur in the shorter term relative to longer term expectations". While we don't know which model Deloittes have placed more reliance on, surely the value of LLP should be based on the longer term expectations (not conservative forecasts, which is what the Fund Model could be viewed as).

To my knowledge the Deloittes report and the Scheme Booklet don't mention the price Lend Lease were prepared to pay (and did pay) Babcock and Brown (BNB) for LLP securities, the prices they paid on market for minority parcels or the price they paid to recapitalise LLP late last year. My understanding (based on my review of ASX announcements etc) is that:
1. On 25/6/08 Lend Lease announced that they had become a substantial shareholder. This ASX notice stated that they had paid 45 cents per share for a 6% MINORITY interest. In order to acquire 100% of a company a premium of 30% is generally required to be paid above the listed market (minority interest) value. Notwithstanding the impact of the global financial crisis this implies that Lend Lease should be prepared to pay a lot more than 31 cents per LLP security
2. On 1/10/09 (ie at a time when the GFC was upon us) LLP announced a proposal whereby Lend Lease would acquire Babcock and Brown's (BNB) securityholding in 2 tranches for 61 cents and 55 cents per security. Lend Lease was also prepared to subscribe for $145m of new LLP securities at a price of 68c per share! (source pg 16 and 17 of Deloiites report dated 28/11/08)
3. While the price paid to BNB was revised down to 29 cents, this simply reflected the fact thet BNB were a desperate seller (for obvious reasons). LLP securityholders who are not deperate sellers should therefore not accept 31 cents!
4. Pg 4 of Deloittes report dated 28/11/08 stated that the weighted average price paid by Lend Lease under the Original LLC proposal was 51 cents!

If you believe Lend Lease's offer is also too low you should vote NO now.