Fir Tree Partners Encourages PEPR to Secure a Higher Price for Minority Unitholders
06 May, 2011, 07:00 BST
LUXEMBOURG, May 6, 2011 /PRNewswire/ -- Fir Tree Partners, a private investment firm that owns approximately 4.94% of the Units of ProLogis European Properties FCP, yesterday sent the following letter to ProLogis and ProLogis European Properties management:
5 May 2011
ProLogis Management s.a.r.l.
in its capacity as management company of PEPR (as defined hereafter)
34-38 Avenue de la Liberte
L-1930 Luxembourg
Mr. Peter Cassells
Chief Executive Officer
ProLogis European Properties
18 Boulevard Royal
L-2449 Luxembourg
The PEPR Board
Attention: Mr. Geoffrey Bell
Chairman of the Board
ProLogis European Properties
780 3rd Avenue, 10th Floor
New York, NY 10017-7053
Dear Peter and Geoffrey,
We are writing to you on behalf of Fir Tree Partners and its affiliated funds (collectively Fir Tree) with respect to the public tender offer made by PLD International LLC (PLD) on 22 April 2011 (the Tender Offer) for all of the outstanding ordinary and preferred units in ProLogis European Properties FCP (PEPR).
Fir Tree strongly believes that the terms of the Tender Offer, in particular the determination of the offer price (the Offer Price), are not in the best interests of PEPR and/or its unitholders as the Offer Price significantly undervalues PEPR's units and allows PLD to take advantage of its affiliate status to the detriment of the other PEPR unitholders. We are dismayed by the apparent reluctance of the Board of PEPR to pursue value-enhancing alternatives on behalf of PEPR's minority unitholders and strongly urge you to take active steps to secure the best possible price for unitholders, including holding direct negotiations with ProLogis and/or taking the appropriate steps with regulatory authorities, such as requesting the CSSF to review the fairness of the tender price. As you know, the members of the PEPR Board and of the board of directors of ProLogis Management s.a.r.l. (collectively the Board), and in particular the independent directors of the PEPR Board, have a fiduciary duty and obligation to act in the best interests of PEPR and in a manner consistent with maximizing value for all unitholders. Sitting still while acknowledging that the Tender Offer undervalues the company is simply not an option and, in fact, is an abrogation of your fiduciary duty.
Fairness of Tender Offer Price
By way of background, on 27 April 2011, Fir Tree sent a letter to PLD (Enclosure 1) stating the PLD Tender Offer significantly undervalues PEPR's units. Fir Tree noted that the Offer Price was at a discount to EPRA net asset value and that a fair offer should compensate unitholders (other than PLD) for giving up the value of PEPR's future growth prospects. Fir Tree reminded the PEPR Board of their fiduciary duty and obligation to act in the best interests of PEPR and in a manner consistent with maximizing value for all unitholders. Fir Tree strongly suggested in its letter that the offer be revised using best business practice and valuation methods to ensure that the holders of units are treated fairly, are afforded a fair price for their units, and are given a genuine opportunity to make an informed decision with respect to the PLD Tender Offer.
Supporting Fir Tree's view that the Offer Price undervalues the units, on 3 May 2011, ProLogis Management s.a.r.l., in its capacity as management company of PEPR (the Management Company) released its opinion that the Offer Price was, from a financial point of view, inadequate to the unitholders (see http://www.prologis-ep.com/pepr/storage/2011-05-03.pdf). In reaching this view, the Management Company also considered the opinion dated 29 April 2011 provided by Deutsche Bank to the Management Company that, from a financial point of view, the Offer Price is inadequate to the unitholders.
Fir Tree continues to be dismayed by PLD's failure to focus on the fundamental valuation issue. In its press release dated 3 May 2011 PLD chooses not to comment on the inadequacy of the Offer Price, which is the fundamental issue, but rather to suggest that it is benevolently providing liquidity to the unitholders. Of course, PLD fails to acknowledge that such "liquidity" comes at a discount to the fair value of the units and leaves unitholders who choose not to tender holding a more illiquid security with fewer fundamental investor rights. Far from doing unitholders a favor, PLD is forcing us to choose between inadequate cash consideration and an uncertain future as a minority unitholder.
In order for you to fully appreciate the material discrepancy between the Offer Price and the fair value for the units of the Fund, we have attached our internal analysis of the appropriate valuation of the units (Enclosure 2). It clearly shows that the Tender Offer price significantly undervalues PEPR units on a variety of metrics compared to other publicly-traded European real estate securities.
Coercive Tender Offer and Timing of Tender Offer Period
In addition to our valuation concerns, we are also troubled by the coercive nature of the Tender Offer, the lack of transparency throughout the process, and the minimal amount of time to evaluate the Tender Offer.
First, we are particularly troubled by the coercive nature of the Tender Offer. PLD currently owns approximately 39% of the units and, as the Management Company notes in its opinion, the liquidity and marketability of any units not tendered may be impacted as a result of the Tender Offer. If PLD acquires at least 50% of the Ordinary Units, it will be able to approve or block certain important decisions of the general meeting of unitholders and, if PLD acquires at least 67% of the Ordinary Units, it will be able to approve or block certain fundamental investor rights, including the amendment of the Management Regulations, the removal of the Management Company without cause and the winding-up of PEPR. One must question the Management Company's commitment to creating value for minority unitholders in light of the fact that no dividends have been paid recently or will likely be paid in the foreseeable future. We believe that PLD has created a "prisoner's dilemma" choice for unitholders by creating a situation where a unitholder that is considering not tendering into the Tender Offer risks effectively losing all fundamental investor rights if PLD is able to acquire 67% of the Ordinary Units (particularly where PLD holds less than 90% of the Ordinary Units).
Second, while PLD appears to be trying to focus unitholder's attention to the recent trading price of the units, the Board has made minimal effort to disclose to unitholders the future growth opportunities that they would be foregoing by tendering their units. We find it odd that you would take a stance on the adequacy of the consideration without telling us what you think is the fair value of the units and your plan for realizing that value. From our perspective, in order for unitholders to properly evaluate the Tender Offer, PEPR should publicly release all relevant information relating to the value of the Units, including management plans for PEPR and the analysis prepared by Deutsche Bank. We believe that this information is critical to truly understanding the Tender Offer and, ultimately, the value of PEPR.
Finally, we are very concerned that PLD has given unitholders only a minimal amount of time to consider the Tender Offer. When the Tender Offer commenced, it was open only for two weeks, the shortest period permitted under the law of 19 May 2006 on public takeover bids. On 3 May 2011, the Tender Offer was extended for an additional five days, apparently in recognition that there was inadequate time to evaluate the Management Company's opinion. From our perspective, unitholders (and the appropriate regulators) should have sufficient time to evaluate the terms of the Tender Offer and concerns raised by the Management Company's opinion and interested unitholder's concerns. We do not believe that the current period gives unitholders sufficient time to properly evaluate these issues.
In any take-private transaction, we believe that fundamental fairness and good corporate governance demand full transparency, sufficient time to evaluate the offer and a lack of coercion. We believe that these elements are lacking in the current situation. Therefore, in addition to addressing the inadequate Tender Offer price, we urge the Board to use all of its powers to ensure that the Tender Offer period is extended so as to give all unitholders sufficient time and information to enable them to reach a properly informed decision.
* * * * * *
In summary, we believe that the terms of the Tender Offer, in particular, the determination of the Offer Price, are not in the best interests of PEPR and/or its unitholders. We have not seen any evidence that the Board is taking active steps to secure the best possible price for unitholders.
We hope that you take your fiduciary duties seriously and take all steps necessary to secure the best possible value for all unitholders (other than PLD).
Yours sincerely,
Aman Kapadia
Director
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ENCLOSURE 1
April 27, 2011
PLD International LLC as Offeror
Attention: Mr. Walter Rakowich
Chief Executive Officer
ProLogis
4545 Airport Way
Denver, Colorado 80239
The Board of Directors of ProLogis Management s.a.r.l.
in its capacity as management company of PEPR (as defined hereafter)
34-38 Avenue de la Liberte
L-1930 Luxembourg.
The Board of Directors of PEPR
c/o Mr. Geoffrey Bell
Chairman of the Board
ProLogis European Properties
780 3rd Avenue, 10th Floor
New York, NY 10017-7053
Dear Sirs:
We write to you on behalf of Fir Tree Partners (Fir Tree) with respect to the public tender offer made by PLD International LLC (PLD) on 21 April 2011 (the PLD Tender Offer) for all of the outstanding ordinary and preferred units in ProLogis European Properties FCP (PEPR or the Fund). Fir Tree Partners is a private investment firm formed in 1994 that manages over $6.5 billion in assets. Funds managed by Fir Tree hold over 8.2 million ordinary units, representing approximately 4.3% of the ordinary units of PEPR, and over 180,000 preferred units. We believe that the PLD Tender Offer is not in the best interests of PEPR or its unitholders because it does not constitute fair value for the units of the Fund.
Fir Tree believes that the PLD Tender Offer significantly undervalues PEPR units. The PLD Tender Offer has been made at a discount to the Net Asset Value (NAV) of euro 6.32 per unit determined pursuant to European Real Estate Association (EPRA) standards (the EPRA NAV), which is the valuation metric that PEPR itself uses with respect to its assets (and which is deemed to be best practice for publicly-listed European entities). In an M&A context, buyers typically pay a premium to underlying asset value to reflect the value of control and of synergies that they may achieve. Fir Tree believes that the true value of the units is higher than EPRA NAV, since EPRA NAV is a backward-looking estimate that uses current trough-cycle rents and penalizes the Fund for short lease terms. Given the improvement of the global economy and the fact that very little new supply has been created in the last three years, we anticipate that going forward PEPR will realize outsized rental growth compared to the market as a result of its shorter lease breaks. A fair offer should compensate unitholders (other than PLD) for giving up this future growth.
While the offer document suggests that PLD also considered the IFRS NAV of euro 5.62 per unit, Fir Tree does not believe that IFRS NAV is an accurate representation of the value of the units either as the Fund itself has suggested in its release dated 24 January 2011 that the underlying economic impact of the recent change in deferred tax liability is only euro 0.08 per unit rather than the nearly euro 0.70 per unit implied by the IFRS NAV.
PLD also notes that its tender offer represents a premium to the unaffected closing price of the units. We believe that the previous trading price is not a valid indicator of value because PEPR's price was artificially held down by the Fund's refusal to reinstate the regular dividend. Until recently, PEPR was one of the cheapest publicly-traded real estate entities in Europe on a number of different metrics despite having a very young portfolio located in key barrier markets, an impressive list of tenants, market-leading occupancy levels, and a conservative leverage profile. The only possible reason for the gap between the NAV and trading price of PEPR units is that PEPR is one of a handful of listed entities that does not pay a dividend.
Finally, we would like to remind the members of the PEPR Board and of the board of directors of ProLogis Management s.a.r.l. (collectively the Board), and in particular of the independent directors of the PEPR Board, of their fiduciary duty and obligation to act in the best interests of PEPR and in a manner consistent with maximizing value for all unitholders. We are concerned about the conflicts of interest inherent in PLD's position as both (i) the controlling shareholder of ProLogis Management s.a.r.l., the external manager of the Fund and (ii) a potential acquirer. It is not lost on us that PLD has increased its ownership of PEPR units twice after suspending the dividend, both times at a discount to EPRA NAV. Given this conflict, it is curious that the offer document invites ProLogis Management s.a.r.l. to give its advice on the PLD Tender Offer despite the fact that it is a related party.
In light of the above, we believe that the offer should be revised using best business practice and valuation methods to ensure that the holders of units are treated fairly, are afforded a fair price for their units, and are given a genuine opportunity to make an informed decision with respect to the PLD Tender Offer.
We strongly express our hope that the Board understands and takes its fiduciary duties seriously in seeking out the best possible outcome for all the unitholders. While we are prepared to be accommodating to help the process, we respectfully reserve all our rights in respect of the PLD Tender Offer. In particular, we reserve the right to resort to the competent authorities, the Commission de Surveillance du Secteur Financier and the Authority for the Financial Markets, to take action and determine the fair price for the units, which we believe would result in a higher value being paid to unitholders than the current price. In addition, we have serious doubts that the tender offer constitutes a proper tender offer governed by the Luxembourg law of 19 May 2006, since such law per se only applies to incorporated entities, not to entities like PEPR, which is a fonds commun de placement lacking legal personality of its own.
Yours sincerely,
(sig)
Aman Kapadia
Director
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ENCLOSURE 2
2011E
EV/ 2011E Dividend
EBITDA PE Yield Source
------ -- ----- ------
All European Real Kempen & Co. Weekly
Estate Valuation Update 25
Companies(1) 20.1x 18.8x 4.3% April 2011
European
Industrial REITS
-----------------
Segro 18.3x 17.9x 4.8% Bloomberg as of 5 May
2011, Company Filings
Hansteen 18.1x 16.4x 4.6% Bloomberg as of 5 May
2011, Company Filings
ProLogis European
Properties(2) 14.4x 14.4x 0.0% 2011 PEPR Management
Discount to Guidance
European Real
Estate Companies (28%) (23%)
Discount to
European
Industrial REITS (21%) (16%)
Comps Tender
PEPR Implied PEPR Comps Implied Price
Price At: Metric Metric Price Discount(2)
------------ ------ ------ ----- -----------
EV / EBITDA
All Real Estate
Company Average
EV/EBITDA
multiple 14.4x 20.1x euro 11.78 (48%)
Industrials
Average EV/
EBITDA Multiple 14.4x 18.2x euro 9.89 (38%)
Price / Earnings
All Real Estate
Company Average
PE multiple 14.4x 18.8x euro 7.94 (23%)
Industrials
Average PE
Multiple 14.4x 17.1x euro 7.24 (16%)
Dividend Yield(3)
All Real Estate
Company Average
Dividend Yield 0.0% 4.3% euro 6.71 (9%)
Industrials
Average Dividend
Yield 0.0% 4.7% euro 6.71 (9%)
----
(1) Includes 53 companies covered by Kempen & Co. in its Weekly
Valuation Update
(2) At Tender Offer price of euro 6.10
(3) Assumes PEPR pays out 75% of EPRA earnings per unit
Note: EV = Enterprise Value; EBITDA = Earnings Before Interest Taxes
Depreciation and Amortization; PE = Price /Earnings Multiple
About Fir Tree Partners
Fir Tree Partners is a private investment firm formed in 1994 that manages over $6.5 billion in assets.
SOURCE Fir Tree Partners