Ron Brierley creates unique situation with takeover bid for AYT by: Bryan Frith From: The Australian December 14, 2011 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these? THE on-market takeover bid for the Adelaide Managed Funds Asset Backed Yield Trust (AYT) by Ron Brierley's latest corporate vehicle, India Equities Fund (INE), is sailing in uncharted waters. That should really be no surprise where Sir Ron is concerned. He has always had the ability to exploit situations that others have failed to notice.
AYT has been in a long-flagged process of orderly wind-down. With units selling at well below net tangible assets (NTA), the unitholders in September last year voted for a program of capital returns as assets matured, to be followed by delisting of the fund. It would continue as a unlisted vehicle until the remaining assets were realised and the fund terminated. Delisting was originally expected about October this year.
When the wind-down process was approved last year the NTA was $1.64 a unit and shortly after AYT made a capital return of $1.33 a unit.
...Last month, there was a capital return of 24c a unit, which the RE (responsible entity) Adelaide Managed Funds (AMF) said would reduce the NTA to 4.5c a unit and that AYT would apply to the ASX for delisting.
On November 10, the RE announced that after consultation with the ASX it had been agreed that AYT would be removed from the official list at the close of trading on December 15.
Upon delisting unitholders would no longer be able to buy or sell units on the ASX. AMF said it would not be creating a market for AYT units, but had engaged Computershare to provide an "information service" whereby interested sellers and buyers could be introduced.
On December 6, the fund paid a final income distribution of 39c a unit and on the following day AYT announced an increase in the NTA to 5.5c a unit, as a result of a reduction in the impairment provision against the fund's last significant asset -- MIS notes, which are securitised loans related to the failed Great Southern Plantations.
Last month, after the RE had announced the delisting date, INE popped up with a 13 per cent stake in AYT, acquired at about 3.5c a unit (after AYT had gone ex the 24c a unit capital return).
On Friday afternoon, INE announced an on-market offer, under which Taylor Collison is to stand in the market and take all shares offered at the bid price of 4.8c a unit.
The bid doesn't start until two weeks after the announcement, but the broker can, and has, reserved the right to take all shares offered from the time of last Friday's announcement. The offer must remain open at least a month and is currently scheduled to close on January 24.
There's an obvious problem. By the time the bid was announced AYT had only four trading days remaining before its shares would be delisted under the agreement between AMF and the ASX. Once that happened AYT unitholders would be unable to accept INE's offer.
INE requested that the RE apply to the ASX to defer the delisting until the completion of the offer. But AMF is not in the mood to co-operate. The board and management of the RE consider the offer price does not provide sufficient value to unitholders and recommend that they don't accept.
AMF notes that the offer price represents a 12.7 per cent discount to NTA. Maybe, but it's also a premium of 0.4c a unit, or 9.1 per cent to the pre-bid closing price and 1.2c, or 33 per cent to the one month volume-weighted average price (VWAP) -- the NTA was increased by 1c a unit during that period.
AMF says that, given the board and management's assessment of the offer, the RE intends to proceed with the delisting as of the close of trading tomorrow. Moreover, the RE says that if any alternative proposals are received, either prior to or after delisting, they will be appropriately considered at the time.
AMF's remarks suggest that if the board and management had considered INE's offer price was sufficient to warrant recommendation they would probably be prepared to accede to its request to seek deferral of delisting until after the close of the offer.
In effect, AMF's refusal to defer delisting threatens to deprive unitholders of the opportunity to consider whether or not to accept the offer.
That really is a high-handed attitude to adopt. This is not scheme of arrangement but a takeover offer and it should be up to the unitholders, not the board and management of the RE, to decide whether or not to accept the offer. It could be up to two years before the remaining assets are realised.
AYT has some large unitholders. Ayersland owns 19.5 per cent, the family superannuation fund of former high-profile fund manager Chris Cuffe owns 5.3 per cent and Blackrock holds about 6 per cent.
It may be that some unitholders would be prepared to stay in an unlisted AYT until the final distribution and wind up of the fund. On the other hand, the on-market bid would provide holders with immediate certainty of 4.8c a unit in cash within three days of acceptance.
As often happens with on-market bids, the price of AYT units has been bid above the offer price, closing yesterday at 5c, preventing INE from acquiring any stock unless it is prepared to increase the bid price.
On-market bids are governed by the takeover provisions of the Corporations Act, which impose certain obligations upon INE that it cannot comply with them unless the delisting is deferred. INE has not yet dispatched its bidder's statement to the unitholders and is unlikely to be able to do so before delisting.
This is almost certainly a unique situation. AMF and INE have both made submissions to the ASX, which is believed to have last night decided that it will not require AMF to seek a deferral.
In reaching that decision, the ASX has no doubt taken into consideration that the timing of the offer was in the hands of INE. The units have been trading ex the 24c a unit capital return since November 9 and it would have been open to INE to pitch an offer to enable it to stand in the market for one month before the December 15 delisting deadline.
On the other hand, the ASX would almost certainly agree to a deferral of delisting if it was requested by the RE and it's difficult to see any downside in making such a request.
It remains to be seen whether ASIC considers that INE, having launched a formal on-market bid, should be allowed -- if not required -- to go ahead with the offer. If the answer is yes then it needs to act quickly.
AYT Price at posting:
5.0¢ Sentiment: Hold Disclosure: Held
