Since ESR Cayman has the irrevocable undertakings of its major shareholders for the merger with ARA Asset Management in a largely share transaction, the shape of the enlarged entity is starting to take shape, with an EGM set for Nov 3, at 10am.
The transaction amount remains the much on same terms as indicated in the Aug 4 announcement.
Under terms of the proposed deal, ESR Cayman will pay US$5.19 billion for ARA Asset Management.
The amount will comprise of US$519 million in cash and is expected to be funded by the internal resources of the group and the net proceeds from the SMBC Subscription.
The remaining US$4.67 billion is to be paid by issuing nearly 1.35 billion consideration shares at the consideration share price.
See also: ESR Cayman raises stake in Sabana REIT through DRP
However, there is a cash consideration adjustment based on the possible adjustment at the company’s election to issue new shares at a price per share, which is greater than the company agreed share price (being HK$27) subject to the maximum total cash proceeds of around US$1.04 billion and which will be applied towards the partial settlement of the total consideration, as indicated in the circular published on Oct 17.
Prior to completion, the ARA Group will undertake a reorganisation known as the "pre-completion reorganisation", such that it will increase its effective interest in LOGOS from approximately 52% as at June 30 2021 to approximately 86.4% upon completion. As a result of the reorganisation, Ivanhoe Cambridge and Athena Logistics will become shareholders of ARA. On Oct 15, the Australian press reported that a consortium of investors led by LOGOS acquired a 14 hectare site next to Sydney airport for A$802 million. State-of-the-art distribution centres will be developed on the site to service the boom in the logistics sector in proximity to air freight.
Immediately prior to completion, Alexandrite Gem, a Warburg Pincus entity, will also acquire ARA Shares from ARA Cayman, to roll its current indirect interest in ARA Asset Management down to a direct interest, and become a seller under the proposed transaction.
A break clause exists should a material adverse effect occur, where the closing price falls 20% or more below the company agreed share price (being HK$27) for any consecutive 10 trading day period after the date of the acquisition agreement on or before the date falling 45 calendar days after the date of the acquisition agreement.
After completion, Warburg Pincus entities, Straits Trading, SMBC, Wealthman Group (CK Asset Holdings), New Horizon (which is owned by Celine Tang) and Ivanhoe Cambridge have agreed to a lock-up of their ESR Cayman shares for a period of six months from the date of completion
The John Lim entities, LOGOS, Laurels and Redwood entities have agreed to a lock-up for 36 months from the date of completion.
ARA executives, meanwhile, have an 18-month lock-up period.
Wealthman Group will be entitled to appoint the chairpersons of, and have a veto over the appointment of the CEOs nominated by the group to, the managers of Fortune REIT, Prosperity REIT and Hui Xian REIT for so long as CK Asset Holdings and its units remain the largest unitholder of the relevant REIT.
Interestingly, Straits Trading will retain its existing right to appoint the chairperson of Suntec REIT for so long as it remains a ‘significant shareholder’ based on a ‘numerical threshold’ to be discussed and agreed to.
Completion of the transaction will be conditional upon, among other things, the shareholders approving at the EGM the appointment of two nominees of ARA Cayman and one nominee of SMBC to the board as directors. The directors are likely to be John Lim, Justin Chiu, a director of CK Asset Holdings, and Rajeev Kannan from SMBC.
The independent financial adviser to ESR Cayman’s shareholders, Somerly Capital, says the proposed transaction, the largest acquisition since its listing, will not only expand ESR Cayman’s scale of operation immediately, but will also bring significant synergetic value to the enlarged group.
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Somerly Capital notes that ARA Group has a diversified portfolio under management, including offices, retail, hospitality and other types of real estate related investments.
"While such other types of real estate investments have not been its strategic focus, the group may take advantage of the financialisation of real estate in Asia Pacific, in particular the expected growth of REIT markets in the region, to assist its capital partners to divest commercial real estate and to re-deploy the capital back into New Economy real estate, which the group (and LOGOS upon completion) has a strong track record,” Somerly Capital says.
“Having considered the commercial rationale and the fact that the ARA Group is a leading real asset manager in Asia Pacific with a significant size of AUM that invests in New Economy real estate, we concur with the directors’ view that the proposed transaction represents a sensible expansion move by the group and is in line with the group’s stated strategy on expanding its position as a leading logistics real estate and fund management platform in Asia Pacific,” Somerly Capital adds.
Photo credit: ESR Cayman
