DXS Dexus

   By Rebecca Thurlow 
 

SYDNEY--Cromwell Property Group (CMW.AU) has acquired a 9.8% stake in Investa Office Fund (IOF.AU), which could upset 2.0 billion Australian dollar (US$2.6 billion) takeover bid for the office landlord from Dexus Property Group (DXS.AU).

The move raises the possibility of a bidding war as demand for Australian commercial property intensifies.

In a statement to the Australian Securities Exchange, Brisbane-based Cromwell Property, which is 25% owned by South Africa's Redefine Properties Ltd. (RDF.JO), said the acquisition is consistent with its strategy "to be ready to capitalize when the right opportunities present themselves."

Cromwell has yet to detail its intentions, leaving investors wondering whether it plans to launch a rival bid or use its blocking stake to negotiate with Dexus for some of Investa Office's assets.

It would be Cromwell's second play for a slice of Morgan Stanley's (MS) former commercial real estate empire in Australia. The property manager was among the bidders for the U.S. investment bank's sale of Investa Property Group last year.

Dexus has experience in offering a slice of the spoils to a rival in order to get a deal across the finish line. In 2014, Dexus convinced GPT (GPT.AU) to back out of a bidding war for Commonwealth Property Office Trust by promising to divide up Commonwealth's 25 properties, which are some of the best-located office buildings in Australian big cities.

Shareholders in Investa Office Fund are scheduled to vote Friday on whether to accept Dexus's bid--made up of 0.424 Dexus shares and A$0.8229 in cash per Investa Office share--which would entrench Dexus's dominance in the listed office trust sector in Australia.

Last week, Dexus sweetened its offer by saying that shareholders will receive an additional 7 Australian cents for each share in the fund by way of a special distribution that is conditional on the success of the merger, in an attempt to push the deal amid opposition from some shareholders.

On Tuesday, before Cromwell's announcement, analysts at CLSA said the vote was looking "too close for comfort" after Dexus failed to convince Australia's Takeovers Panel to prevent Morgan Stanley from voting its 8.9% stake at the meeting.

Dexus's offer has the backing of Investa Office Fund's board, but is being opposed by the fund's manager, Investa Commercial Property Fund Group. ICPF took over management of Investa Office from Morgan Stanley earlier this year and, in an unusual misalignment between the advice of a real estate trust's manager and that of its board, is urging shareholders to reject the Dexus offer and instead buy half the management platform.

In its case to the Takeovers Panel, Dexus argued it would be unacceptable for the U.S. investment bank to vote because of its relationship with ICPF. The second tranche of its A$90 million payment from ICPF for the management rights is conditional on the platform being retained in its current form--meaning it stands to make A$45 million if the Dexus takeover fails.

Write to Rebecca Thurlow at rebecca.thurlow@wsj.com

(END) Dow Jones Newswires

April 12, 2016 03:09 ET (07:09 GMT)

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