DXS Dexus

   By Rebecca Thurlow 
 

SYDNEY--Australia's Takeovers Panel has been asked to intervene in a battle for Investa Office Fund (IOF.AU) as demand for commercial property in the country intensifies.

Australia's biggest office landlord, Dexus Property Group (DXS.AU), has made a cash-and-shares bid valuing the trust at 2.6 billion Australian dollars (US$2.0 billion) and wants IOF's former manager Morgan Stanley to abstain from voting on its stake when shareholders meet to decide on the offer next month.

The deal would entrench Dexus's dominance of the listed office trust sector in Australia after it snapped up rival Commonwealth Property Office Fund in 2014 following a takeover fight with GPT Group. The offer of 0.424 Dexus shares and A$0.8229 cash for every IOF share already has the approval of the IOF board, but is being opposed by Investa Commercial Property Fund Group, which took over IOF's management from Morgan Stanley as part of a move by the U.S. investment bank to divest its Australian commercial property business Investa Property Group. In an unusual mis-alignment between the advice of a real estate trust's manager and that of its board, ICPF is urging shareholders to reject the Dexus offer and instead buy half the management platform.

Dexus wants Morgan Stanley to abstain from voting its 8.9% stake in IOF, which is held on behalf of unitholders in the bank's real estate investment trusts, when shareholders meet on April 8 to decide on the takeover bid, saying it would be unacceptable for the U.S. investment bank to vote because it is associated with ICPF.

The Takeovers Panel said Tuesday it has received the application from Dexus but no decision has yet been made as to whether to conduct proceedings.

The panel will need to decide whether Morgan Stanley has a conflict of interest because 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.

Dexus also wants ICPF to withdraw the information it has circulated to shareholders advocating they reject the Dexus deal which it says undervalues the company.

ICPF Chief Executive Jonathan Callaghan noted in a statement that the Panel hasn't made any comment on the merits of the application. He added: "We are very comfortable with our position and content to let the Panel and the courts make their determination."

A spokesman for Morgan Stanley declined to comment on the application.

CLSA analysts Michael Scott and Sholto Maconochie said both the Dexus and ICPF proposals have merit for shareholders and it is good that investors have a choice, however to a large extent the outcome may depend on whether Morgan Stanley is allowed to vote. The Dexus deal acquires approval of 75% of shares voted at the meeting to succeed.

"With A$45 million at risk, we believe Morgan Stanley are a related party and should abstain from voting," the analysts said in a research note before the announcement.

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

(END) Dow Jones Newswires

March 22, 2016 02:04 ET (06:04 GMT)

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