$1.50 soon, page-8

Board should take Valad Europe money and run
18 March 2011 | By James Whitmore.
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http://www.propertyweek.com/comment/board-should-take-valad-europe-money-and-run/5015149.article

However, the collapse this week of Valad Europe?s ?52m MBO bid is more complicated than that.

A spokesman for the firm told me that the withdrawal of the proposal had nothing to do with funding, without elaborating further. I believe a game of brinkmanship is being played by Valad Europe?s management, headed by chief executive Martyn McCarthy, and that the MBO team will eventually succeed.

The reason is simple: if the board of Sydney-based Valad Property Group accepts the McCarthy MBO, the company receives ?26m. But if the board rejects it and opts for a third-party bid, it receives absolutely nothing ? even if the bid is higher.

This odd scenario is because of Valad Europe?s relationship with Lloyds Banking Group. In June 2009, the pair formed a joint venture, called Duke, as part of Valad?s restructuring. This joint venture owns ?969m of properties, which is ?138m less than the debt that secures them.

Lloyds also chose Valad Europe a year ago to take over the management of European Commercial Real Estate ? previously Kenmore Europe ? which owns ?167m of properties
in the Nordic countries, Germany and the Netherlands.

A condition of this ?special relationship? is that, if Valad Europe is sold before 30 June 2012, the proceeds must be paid to Duke. The fact that Valad will receive ?26m if it agrees to the McCarthy MBO, rather than nothing, suggests that the MBO is not just backed, but also funded by Lloyds.

Bid goodbye
So why has the Valad Europe MBO team withdrawn its bid? It seems to be because of frustration at the slow progress of the deal. The MBO team might hope that its withdrawal focuses the minds of the Valad shareholders and forces the company?s board to speed up negotiations.

Valad said this week that it would continue to explore approaches from third parties for Valad Europe and ?make a decision in relation to the future ownership of the European business based on the merits of the proposals?. Brave words, but ? as I?ve said ? bids from third parties are a waste of time for Valad, because it will receive no money.

It added that it intended to retain Valad Europe ?should none of these proposals be in the best interests of security holders?. More brave words, but it would be extremely challenging to persuade an MBO team that wants to be independent to remain with the company.

The Valad board effectively has a gun to its head. It has to restart talks to sell Valad Europe to its management and take the ?26m on offer.



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The only thing I don't quite agree is: Why can't we sack all those guys with a cost, and retain the business until July 2012 and sell?