centro flags sale of service business, page-18

This is a really difficult scenario TBH. Centro is damn complex so trying to do the maths on decoupling and selling the services business based on the disclosed reporting is hard to say the least. In light of this, it might be worth just theorising...

One option is for Centro to do a mass-restructure of all entities. This would simplify the structure and overcome one of the huge hurdles that everyone seems to be missing - reputational damage caused to the Centro brand. Remember that we are going to struggle to attract any new external investors for the medium term because they aren't going to want to deal with 'Centro'.

Centro could decouple, spin off the 'services business', rename it and list it as a separate ASX entity - let's call it Australian Centre Management (ACM). Shares could be offered to 3 groups: some to existing holders, Centro retains some and the rest are sold through a book-build or offered for sale to existing CNP holders. This would allow Centro to retain some of the income AND raise some much needed capital through the book build, which it would use to pay down debt. It was also unlock some value for shareholders. BUT the key here is that future inflows would be under the ACM brand, not Centro. It would also allow ACM to go off and chase their own business outside the Centro universe.

CNP would then consolidate what remains into a much simpler listed entity. CER may play a part in this somewhere too.

This is pie-in-the-sky speculation but it would be a path that unlocks some of the value of the 'intangible' business, pays down some debt without immediate asset sales and gives shareholders a return. It may also explain why the whole process is taking so long.

Some simple maths to illustrate the point:

If the SB was valued at, say, $2bn then issuing 2bn shares at $1 each: 420m to existing CNP holders (1/2 ACM share for each CNP share held), 420m retained by Centro and 1.16 bn listed. This would raise $1.1bn in cash (after fees) to pay down debt but still give Centro and existing holders a share in the future earnings. Asset sales would be icing on the cake.

You can adjust the figures yourself based on your own valuation of the SB and how you think the shares should be divided up. For example, the SB could be $1bn or $3bn (who knows?) and the shares could be broken up many ways (CNP could retain more / less, CNP shareholders more / less, etc.)

My numbers are for illustration only. Either way, you get the idea.

I'm a bit sceptical about selling the whole business lock-stock (as suggested in the papers) as I doubt we would get fair value for it. Centro will want to retain some of the income as without it, the company is just an owner of assets.