Green Property has been quick to take control of Manchester-based, publicly-quoted, Trafford Park Estates. A three-man team from Green - Stephen Vernon (managing director), Danny Kitchen (finance director) and Mark Cherry (operations director UK) - is now effectively running the Manchester company which had to concede defeat after a bitter fight resisting the Green overtures.
It is, of course, a very positive development for Green. At one stroke, Green's net asset backing will be enhanced by the deal. Later on, as Green applies its management skills, further benefits should flow through. However, the outcome could have been better for both Trafford and Green. Indeed, the hostile nature of the takeover battle, right up to the end, ensured that a mutually acceptable consensus could not be reached. The Trafford shareholders, for example, have lost out because of the intransigence of the octogenarian executive chairman, Sir Neil Westbrook, who found it difficult to even talk to Stephen Vernon or Danny Kitchen. Yet dialogue, near the end, could have ensured an extra penny, or two, in the form of a dividend payment, on top of the 190p sterling cash bid per share.
Green is likely to have conceded that bit extra to get an endorsement from the Trafford board. The outcome, as everyone knows, was a hardball reaction from Green, which gained control because Trafford was unable to tempt a white knight to come to its rescue. But Green has also lost out. Neither company had common institutional shareholders among the over 3 per cent category. A broadening of the institutional shareholder base would have been of great benefit to the enlarged Green group. But that prize slipped away.
Just six institutional investors owned 34 per cent of Trafford. These included Brittanic Assurance with 9.59 per cent, Hermes Investment Management (5.77 per cent), Postel Investment Management (5.73 per cent), Sterling Property Holdings (4.8 per cent), Morgan Grenfell Group (4.05 per cent) and Fleming Mercantile Investment Trust (3.82 per cent). While these were in favour of the Green bid, virtually all went for the cash rather than the Green shares. So they will not participate in Green's future. Neither will Green benefit from their inclusion as shareholders. That must be a big disappointment to the Green team which had courted the institutional shareholders in Trafford in a getting-to-know-you series of briefings. This must be particularly galling as Green is so well supported by other institutional shareholders; the top eight control 46 per cent of the company.
The outcome was acceptance for the cash from Trafford shareholders representing 87.3 per cent of the shares. As a result, 31.6 million new Green shares have had to be issued. That represents a hefty 40 per cent on top of the 79.3 million in issue before the bid.
But the bulk of these, almost 25 million, have been left with the underwriters, Dresdner Kleinwort Benson and Davy Stockbrokers - there are also about 30 sub-underwriters - who are committed to pay 475p per share. They must have had mild heart attacks when they saw the share price collapse from 485p a week ago to 460p last Wednesday before recovering to 470p. Ironically, the warning from Trafford (when it recommended the cash rather than the shares), that the Green share price could fall, was borne out last week.
The underwriters are now (that, of course, can change) looking at paper losses. But when the deal was first announced, it looked as if they had a good margin to play with. Green's share price was then being quoted at 532p. Green, however, was hit on two fronts; an adverse sterling move, and a decline in property shares. The underwriters are entitled to a fee of 1.25 per cent (5.9p per share) plus a further 0.125 per cent for each period of seven days following expiry of the initial 30 days of the commitment. Some of the sub-underwriters will keep the shares. And Green's largest institutional shareholder, Morgan Stanley Asset Management, did not participate in the sub-underwriting because of US securities' legislation and, as a result, has seen its holding fall from 10.3 per cent to 7.37 per cent. It could well be a buyer, bringing its stake back up to 10 per cent. Nevertheless, most underwriters and sub-underwriters will not want to keep these Green shares and it will take the market some time to absorb such an over-hang. But then successes tend to have their own hidden bumps.
