Background
Indus Capital Partners LLC, in its capacity as manager of various funds (Indus) and Artis Capital Partners issue the following media release.
Indus, supported by Artis Capital Partners, has requisitioned a meeting of EDT Retail Trust (EDT) (ASX:EDT) unitholders to consider a proposal1 to wind up EDT (Wind Up Proposal).
The responsible entity for EDT has, in response to the requisition, convened a meeting of EDT unitholders to consider the Wind Up Proposal – that meeting will be held on 8 July 2011.
EPN EDT Holding II LLC (EPN) has made a takeover bid for EDT units at price of A¢ 9.0 per unit (EPN Takeover Offer).
EPN is 50% owned by the ELBIT Group which is comprised of, inter alia, ELBIT Imaging Limited and its majority-owned affiliate Plaza Centers, N.V. (collectively "ELBIT").
ELBIT Disclosures consistent with Wind Up Proposal being Superior to EPN Takeover Offer
ELBIT has recently publicly disclosed information (extracts of which are attached to this media release) that Indus and Artis consider clearly demonstrates that the Wind Up Proposal is a superior proposal to the EPN Takeover Offer.
We highlight extracts from 3 publicly disclosed documents released by the ELBIT Group:
| (A) | Extract from Plaza Centers2 Investor presentation dated June 2011. http://www.plazacenters.com/downloads/press_2011/June_Investor_pres2011.pdf |
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| (B) | Extract of presentation dated 31 May 2011 headed "ELBIT Imaging Limited3 Analysis of Sources and Uses". http://www.elbitimaging.com/contentManagment/uploadedFiles/Presentations/English%20version%20of%20Sources%20and%20Uses%20Presentation%202-6-11.pdf |
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| (C) | Extract of Form 6-K lodged by ELBIT Imaging Limited with the United States Securities and Exchange Commission dated 14 April 2011. http://www.elbitimaging.com/contentManagment/uploadedFiles/2010/6K%20-%20Financial%20Reports%2031.12.2010%20.pdf |
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What do the ELBIT Disclosures state:
| (A) | Section 4 of Plaza Centers, N.V. June 2011 Investor Presentation contains the following statements on slide 40 in relation to EDT's portfolio of assets: |
 |  |  |  |  | in millions of USD |  | Stake |  | Accounting |  | Market Value |  | Value based on NOI(1) |
| Â | Â | Â | Â | Â | |||||||||
| Value as of 27 May, 2011 | Â | 541 | 448 | 695 | |||||||||
| EPN Share | 56%(2) | 303 | 251 | 389 | |||||||||
| Plaza Centers Share | 21.65% | 66 | 54 | 84 | |||||||||
| Â | Â | Â | Â | Â | |||||||||
| (1) assuming 7% yield as the average trading yield of other REIT funds that invests in similar assets | |||||||||||||
| (2) current stake. There is an open offer from EPN to acquire all of the outstanding units in EDT that it does not currently own (offer expires 3 June, 2011) | |||||||||||||
The presentation assesses the value of EDT, based on NOI, at USD695 million (equivalent to AUD649 million based on the prevailing USD:AUD exchange rate of 1.0706). Based on 4,700,290,868 EDT units on issue, this is equivalent to A¢ 13.8 per unit which is more than 50% higher than the EPN Takeover Offer. | |
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(B) | Section 5.8 of the ELBIT Imaging Limited May 2011 Analysis of Sources and Uses presentation contains the following statement: |
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"Assets such as EDT's assets are currently in high demand and are expected to be easily realized either on a single asset basis or in clusters. Yield on these assets in the United States has decreased to levels of 6.5%-7% and they reflect a significant increase of value in comparison to their purchase price (purchase price, yield of 9%) such that realization is most likely expected to generate significant profitability and cash flow. The Company's strategy is to hold those assets in the intermediate term while enjoying a steady cash flow, and to realize them in due time." | |
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This statement clearly demonstrates that there is currently high demand for EDT's assets and that yields (or Cap Rates) have decreased to very attractive levels. It clearly states that "asset realization is most likely to generate significant profitability and cash flow". As Elbit Imaging Ltd holds its investment in EDT at NTA, "profitability" on asset realization can only relate to an expectation of net realization proceeds above NTA. | |
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(C) | Page 44 & 45 (Note 3 – Business Combination – Investment in US real estate market – EDT) of April 2011 Form 6-K lodged by ELBIT Imaging Limited with the United States Securities and Exchange Commission contains the following statement: |
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"According to the agreements, EPN has the right to appoint six board members out of eleven (55%) of the Responsible Entity's board of directors. Pursuant to the Responsible Entity's constitution, few decisions require at least seven affirmative votes including the unanimous vote of all non-independent directors. According to the Company management judgment, the rights specified in the Responsible Entity's constitution granted to the non-controlling interest do not give it the power to participate in the operating and financial decisions of EDT in its ordinary course of business, but only to protect its interests, and therefore fail to impair the Group's power to control the financial and operating policies of EDT. Therefore, the Company management is in the opinion that the rights granted to the non-controlling interest with respect to those decisions do not affect the Company's ability to control the Responsible Entity. | |
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According to the constitution of EDT, Responsible Entity can be appointed or dismissed only by major vote of EDT's unit holders' general Company's management reached a conclusion that despite EPN share in EDT is lower than 50%, EPN possesses de-facto control over EDT hence EPN is the largest units holder in ETD (47.8% as of December 31, 2010) while the remaining units are widely spread between many other unit holders, many of which holds very low percentage in ETD. Therefore, management estimates that the 52.2% unit holders, as a group, has no effective ability to force replacement of the current Responsible Entity (in which, as noted above, the Company possesses control), in case such a decision would come to the general meeting of EDT's unit holders." | |
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It is clear from the above that by its own admission EPN controls EDT Retail Management Limited (ERML), the responsible entity of EDT, and is therefore an associate of ERML. As an associate of ERML, with an interest other than as a member (namely management fees and rights to control decisions and policy), EPN should not be allowed to vote its units on the Wind Up Proposal. |
What needs to be done by EDT and EPN?
- We are very concerned about the resignation of the two ERML independent directors and note that no explanation as to why these directors have resigned has been given.
- We note that ERML has appointed Mr Luke Petherbridge to the Board. Whilst this is a positive development, we believe further steps need to be taken to strengthen the representation of the non-EPN shareholders and independence of the wind up review process. We remain concerned about the continuing involvement of EPN and its associates in that process which, in our view, was the likely reason for the resignation of the former independent directors. Thus, EDT should appoint an investment bank adviser to pro-actively represent the interests of non-EPN shareholders and to ensure that the process is truly independent of EPN and its associates.
- New independent directors (in addition to Mr Luke Petherbridge) need to be appointed to ERML with immediate effect so that the extensive information relating to the reasons why EDT unitholders may wish to vote in favour of or against the Wind Up Proposal can be obtained, prepared and disclosed in supplementary information to be provided to EDT unitholders as soon as possible but, in any event, before the close of the EPN Takeover Offer.
- The ERML directors who have given a recommendation in relation to the EPN Takeover Offer should urgently reconsider their recommendation in light of the information which is referred to in or attached to this media release. Further, those directors should instruct the independent expert to reconsider its fairness opinion in light of this new information. In short, both the opinion of the independent expert, and the recommendation of the directors have been based on a fair value assessment by the independent expert that is well below the stated value of EDT as publicly disclosed by ELBIT. EPN and its associates (including ELBIT) are in the best position to know the value of the EDT assets.
- ERML must provide to the independent expert who is preparing a report in relation to the Wind Up Proposal the additional information that is attached to or referred to in this media release so that the independent expert is in a position to take into account all material information.
- EPN should, in light of the Wind Up Proposal being a superior proposal, increase the offer price under its off-market takeover bid for EDT units. If EPN is not prepared to do this, then EDT should be wound up as a wind up of EDT is clearly in the best interests of unitholders.
1 This is the Proposal that is referred to in the EDT Retail Trust Notice of Meeting and Explanatory Memorandum dated 2 June 2011.
2 Further information about Plaza Centers is included in the material attached to this media release and also in part 4, sections 1.1 and 1.2 of EPN's Bidders Statement. Plaza Centers is disclosed to be an associate of EPN GP, LLC in a notice of change of interest of substantial holder lodged by EPN GP LLC in respect of EDT dated 22 June 2010.
3 Further information about ELBIT Imaging Limited is included in the attachments to this media release and also in part 4, sections 1.1 and 1.2 of the EPN Bidder's Statement. ELBIT Imaging Limited is disclosed to be an associate of EPN GP LLC in a notice of change of interest of Substantial Holder lodged by EPN GP LLC in respect of EDT dated 22 June 2010.
Contacts:
Artis Capital Partners
Peter Kennan
+41 79 811 0020
+852
6503 5252
or
Indus Capital Partners
Ben De Somma
+1
415-276-9500
