Trafford wins second round with Green

Round two goes to British quoted property group, Trafford Park Estates. By insisting that the hostile bid from Green Property, is inadequate, it has, so far, succeeded in keeping acceptances down to a minimum. In fact, Green has only managed to convince Trafford shareholders, representing a mere trickle of 0.78 per cent, to come on board. And Green has not managed to bring one institutional shareholder on board. Green has thrice extended the closing date for its bid. On Friday it extended it for a third time but this time it had a sting in the tail. The Trafford shareholders were warned that Friday, 17th July, is the last day for acceptances, that it is final, and will not be raised unless "a competitive bid situation arise or should the Panel (Takeover) so agree". So the gauntlet has been firmly thrown at the Trafford shareholders' feet. Green is now playing hardball. It may appear to be a dangerous strategy but the institutional shareholders in Trafford have been waiting on the sidelines, waiting, and hoping, that Green would increase its offer. Or alternatively, they were hoping for a white knight to come on the scene and take Trafford out of its misery.

Well no higher offer has emerged, and, so far, no white knight has emerged. A number of the institutions are understood to favour the Green paper over Trafford's as they see Green as far more go-go. Just six institutional investors own 34 per cent of the company. The largest is Britannic Assurance with 9.59 per cent, followed by 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).

They have been touted by Green and they will play a pivotal role in the outcome of the takeover battle. The Trafford directors control only 5.5 per cent. Like every takeover battle, suitors and defenders, vigorously disagree over a host of issues. So how do the claims and counter claims stand up?

The net asset value (NAV) backing for Trafford's share is the most contentious. Trafford says Green's cash offer of 190p per share compares unfavourably with the NAV of 201p and that there is an estimated extra 20p for potential development surpluses and a further 27p for longer term development potential. All very heady stuff but Green has a valid argument in disregarding the potential value. It rightly notes that the realisation of these surpluses are dependent on a number of factors, including the granting of planning permission.

Green, however, is on much shakier ground when it tries to justify its offer. It does this by factoring in a capital gains tax of 11p to bring down Trafford's NAV to 190p. All very neat but this sort of argument is not usually used. The reality is that Green is offering less than Trafford's NAV.

Trafford has tried to belittle Green's profit record. It did this by looking at a 10 year period which made Green look limp compared to Trafford. That comparison was grossly unfair as the present management of Green has only been in operation for the past five years. During that period it has shown itself far superior to Trafford.

Based on historic figures, the Trafford shareholders who accept the Green shares instead of cash, will receive less dividend income. And that was reinforced last week when Trafford said it would raise its dividends by 13 per cent this year. That was ignored by Green when it sent its latest missive last week.

Also ignored was the lack of a loan note alternative for the Trafford shareholders who need to shelter capital gains tax.

But the most telling question was raised by Green when it asked "what are the prospects for the shares if Trafford Park Estates remains as an independent company?". That puts Green into a more robust form as the contenders start round three. The company partly got its answer last Friday when the Trafford shares were quoted at 183p/190p. A mid-price would put them below the Green offer. In contrast Green's share rose 6p to 505p.

Of course, one day's price, is not a firm pointer to the future. However, Green's shares, reflecting the go-go nature of the group, are likely to continue to trade at a premium to its NAV. Trafford's have less glamorous prospects unless they form part of an enlarged Green group, or unless a white knight finally emerges within the next two weeks.