Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Smartkarma Webinar | Cromwell/​ARA: A Festering Relationship

Quiddity Advisors

Event-Driven

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<p><em><strong>Corrigenda: There is an error in this Insight. Please note the correction.</strong></em></p>
<p><em><strong>Correction: The <a href="https://slack-redir.net/link?url=https%3A%2F%2Fwww.smartkarma.com%2Fentities%2Fcromwell-property-group" target="_blank" data-stringify-link="https://www.smartkarma.com/entities/cromwell-property-group" data-sk="tooltip_parent" aria-describedby="sk-tooltip-8166" rel="noopener">Cromwell Property (CMW AU)</a> Offer is a "proportional" offer, not a "partial" offer. </strong></em><em><strong>One can only accept the Offer in full for 29% of one's Cromwell holding - not a greater or lesser proportion. As such, the Ye Olde Arb Grids section can be ignored.</strong></em></p>
</div>
<hr>
<p>The board of Aussie real-estate play <a href="https://www.smartkarma.com/entities/cromwell-property-group" target="_blank" data-smartkarma-citation="entities:2780:1" rel="noopener">Cromwell Property (CMW AU)</a> and Singapore's ARA Asset Management don't exactly see eye to eye. An abridged history:</p>
<h2>The Shareholder Interest</h2>
<p>On the 7 March 2018, ARA <a href="https://www.asx.com.au/asxpdf/20180308/pdf/43s8dgxs8plthf.pdf" target="_blank" rel="noopener">acquired</a> a 19.5% stake in CMW from Redfern Properties, paying $1.05/share according to the substantial shareholder <a href="https://www.asx.com.au/asxpdf/20180308/pdf/43s8v5zrr0mbdp.pdf" target="_blank" rel="noopener">disclosure</a>. </p>
<p>That stake was increased to <a href="https://www.asx.com.au/asxpdf/20190510/pdf/4450cm842crslf.pdf" target="_blank" rel="noopener">20.58%</a> on the 8 May 2019, down to <a href="https://www.asx.com.au/asxpdf/20190704/pdf/446cx8rngs0pxy.pdf" target="_blank" rel="noopener">18.05%</a> on the 2 July after an <a href="https://www.asx.com.au/asxpdf/20190626/pdf/44644n3s1zffrr.pdf" target="_blank" rel="noopener">institutional placement</a>, back up to <a href="https://www.asx.com.au/asxpdf/20191017/pdf/449ltzgh5x4vns.pdf" target="_blank" rel="noopener">19.683%</a> on the 17 October, to <a href="https://www.asx.com.au/asxpdf/20191107/pdf/44bcss14s6vz2s.pdf" target="_blank" rel="noopener">24.4398%</a> (7 Nov), and finally <a href="https://www.asx.com.au/asxpdf/20191112/pdf/44bhwk3pf62890.pdf" target="_blank" rel="noopener">23.731%</a> (12 Nov).</p>
<p>ARA also sought and received <a href="https://www.asx.com.au/asxpdf/20191030/pdf/44b25gnfc973y5.pdf" target="_blank" rel="noopener">regulatory relief</a> on the  30 October 2019 to make acquisitions in CMW under the "creep exception" as it had been diluted by July's institutional placement. </p>
<h2>The Issues</h2>
<p>The following is a short laundry list of ARA's <a href="https://www.cromwellegm.com.au/resources/pdf/SecurityholderLetter.pdf" target="_blank" rel="noopener">criticisms</a> leveled against CMW's management:</p>
<ul>
<li>ARA was excluded from the US$375mn equity raising in July last year, diluting its ownership.</li>
<li>CMW <a href="https://www.asx.com.au/asxpdf/20200204/pdf/44dtf2q1t5jrb6.pdf" target="_blank" rel="noopener">announced</a> a "full strategic review" on the 4 February 2020. Two investment banks were appointed. ARA will not be involved in this review.</li>
<li>CMW "<em>refused to allow ARA to participate in their recent Distribution Reinvestment Plan (DRP). Despite ARA electing to participate in the DRP by taking up securities in Cromwell rather than electing to take the distribution in cash, Cromwell has determined to cash settle the recent distribution to their largest securityholder without notice or explanation</em>."</li>
<li>The nomination of Gary Weiss to the board. 
<ul>
<li>ARA sought to appoint Weiss to the board at an AGM on the 28 November 2019. CMW <a href="https://www.asx.com.au/asxpdf/20191114/pdf/44blfzrh10s4qz.pdf" target="_blank" rel="noopener">countered</a> the appointment in that he is currently a NED of Straits Trading, ARA's largest shareholder. And even if Weiss were to resign that role following his appointment to CMW, he holds significant commitments on other publicly listed (seven) and private boards "<em>which exceed the levels accepted by institutional security holders who consider overboarding high risk and bad governance</em>". His appointment was <a href="https://www.asx.com.au/asxpdf/20191128/pdf/44c2d3jr3wd9w1.pdf" target="_blank" rel="noopener">rejected</a> by 51.30% of shareholders voting at the AGM. </li>
<li>ARA <a href="https://www.asx.com.au/asxpdf/20200302/pdf/44fn8zw5zs73l9.pdf" target="_blank" rel="noopener">called for an EGM</a>, to be held on the 30 March 2020, to again appoint Weiss as a director of the company. CMW similarly asked shareholders to reject the <a href="https://www.asx.com.au/asxpdf/20200302/pdf/44fn93n8yjlz0b.pdf" target="_blank" rel="noopener">appointment</a>. This time <a href="https://www.asx.com.au/asxpdf/20200330/pdf/44gj037f6jwb25.pdf" target="_blank" rel="noopener">57.63%</a> rejected Weiss' appointment. </li>
</ul>
</li>
</ul>
<h2>Concert Parties?</h2>
<p>As at 4 December 2019, ARA held 23.66% and the Tang family 12.19%.  In its <a href="https://www.asx.com.au/asxpdf/20191211/pdf/44chn3hzsphmr1.pdf" target="_blank" rel="noopener">application</a> to Australia's Takeovers Panel, CMW argued that the two parties are associated, and therefore collectively held 35.85% in CMW. CMW sought orders for this combined stake to be reduced to 20% or below. In its 3 January 2020 response, the Panel <a href="https://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=media_releases/2020/001.htm&amp;pageID=&amp;Year=" target="_blank" rel="noopener">declined</a> to conduct proceedings.</p>
<h2>The New News</h2>
<p data-reactid="23">ARA <a href="https://www.asx.com.au/asxpdf/20200623/pdf/44jw1gy2d3dqg4.pdf" target="_blank" rel="noopener">announced</a> this morning a proportional off-market takeover bid to acquire 29% of shares out in CMW, not already owned, at A$0.90/stapled security, a 3.4% premium to last close. Should it be successful, ARA would hold ~53% of shares out. </p>
<p>Currently trading 4.4% through the partial Offer terms.</p>
<p>Not surprisingly, CMW recommends investors to take no action and labels the Offer unsolicited and opportunistic.</p>
<p>As always, more below the fold. Plus <em><strong>Ye Olde Arb Grids.  </strong></em></p>


Corrigenda: There is an error in this Insight. Please note the correction.
Correction: The Cromwell Property (CMW AU) Offer is a "proportional" offer, not a "partial" offer. One can only accept the Offer in full for 29% of one's Cromwell holding - not a greater or lesser proportion. As such, the Ye Olde Arb Grids section can be ignored.


The board of Aussie real-estate play Cromwell Property (CMW AU) and Singapore's ARA Asset Management don't exactly see eye to eye. An abridged history:
The Shareholder Interest
On the 7 March 2018, ARA acquired a 19.5% stake in CMW from Redfern Properties, paying $1.05/share according to the substantial shareholder disclosure. 
That stake was increased to 20.58% on the 8 May 2019, down to 18.05% on the 2 July after an institutional placement, back up to 19.683% on the 17 October, to 24.4398% (7 Nov), and finally 23.731% (12 Nov).
ARA also sought and received regulatory relief on the  30 October 2019 to make acquisitions in CMW under the "creep exception" as it had been diluted by July's institutional placement. 
The Issues
The following is a short laundry list of ARA's criticisms leveled against CMW's management:

ARA was excluded from the US$375mn equity raising in July last year, diluting its ownership.
CMW announced a "full strategic review" on the 4 February 2020. Two investment banks were appointed. ARA will not be involved in this review.
CMW "refused to allow ARA to participate in their recent Distribution Reinvestment Plan (DRP). Despite ARA electing to participate in the DRP by taking up securities in Cromwell rather than electing to take the distribution in cash, Cromwell has determined to cash settle the recent distribution to their largest securityholder without notice or explanation."
The nomination of Gary Weiss to the board. 

ARA sought to appoint Weiss to the board at an AGM on the 28 November 2019. CMW countered the appointment in that he is currently a NED of Straits Trading, ARA's largest shareholder. And even if Weiss were to resign that role following his appointment to CMW, he holds significant commitments on other publicly listed (seven) and private boards "which exceed the levels accepted by institutional security holders who consider overboarding high risk and bad governance". His appointment was rejected by 51.30% of shareholders voting at the AGM. 
ARA called for an EGM, to be held on the 30 March 2020, to again appoint Weiss as a director of the company. CMW similarly asked shareholders to reject the appointment. This time 57.63% rejected Weiss' appointment. 



Concert Parties?
As at 4 December 2019, ARA held 23.66% and the Tang family 12.19%.  In its application to Australia's Takeovers Panel, CMW argued that the two parties are associated, and therefore collectively held 35.85% in CMW. CMW sought orders for this combined stake to be reduced to 20% or below. In its 3 January 2020 response, the Panel declined to conduct proceedings.
The New News
ARA announced this morning a proportional off-market takeover bid to acquire 29% of shares out in CMW, not already owned, at A$0.90/stapled security, a 3.4% premium to last close. Should it be successful, ARA would hold ~53% of shares out. 
Currently trading 4.4% through the partial Offer terms.
Not surprisingly, CMW recommends investors to take no action and labels the Offer unsolicited and opportunistic.
As always, more below the fold. Plus Ye Olde Arb Grids.  