LEND Lease today offered $170.1 million to Lend Lease Primelife for the shares in the aged-care provider that it doesn't already own.
Sydney-based Lend Lease holds a 43.2 per cent stake in the target company, which was formerly called Babcock & Brown Communities Group, and manages its facilities. Primelife operates 65 retirement villages and 34 aged-care facilities, serving 17,000 residents in Australia and New Zealand.
Australia's largest property developer has offered to pay 31 cents cash for each Primelife security, or a 27 per cent premium to its closing price of 24.5c on Friday, with the deal subject to a vote by investors in December.
Last October, Lend Lease, the developer of the London 2012 Olympic Games village, bought a $236.8m stake in Primelife to gain exposure to a rapidly growing aged-care sector. Australia's aging population is projected to grow at twice the rate of the rest of the population, making it the fastest growing age group in the country.
"Lend Lease firmly believes in the long-term fundamentals of the retirement sector," chief executive Steve McCann said in a statement.
Primelife's independent directors have unanimously recommended investors vote in favour of the offer in the absence of a superior proposal.
Lend Lease's total outlay will be funded from existing cash reserves or debt facilities or both. Lend Lease will assume or refinance Primelife's outstanding debt obligations - at June 30 it had $1.12 billion in cash and net debt of $195.8m.
Primelife, which has a market capitalisation of $289.9m, is highly leveraged with a bank debt of $460m at June 30 drawn from a current facility of $525m and debt gearing of 32 per cent.
Earlier this month, it received a waiver from its lenders over an interest coverage covenant breach for the year ended June 30 and under the terms of a new agreement is required to cut its bank debt to $350m by June 2010.
"Lend Lease believes that reducing leverage through asset sales or raising capital in the current environment is likely to further erode security-holder value and is not in the best interests of Primelife security holders," it said.
This will boost Lend Lease's net debt to total tangible assets less cash gearing to about 9 per cent on a June 30 pro-forma basis, from about 3 per cent, Lend Lease said.
The Primelife transaction will be implemented through a scheme of arrangement and is subject to conditions, including court approval and an independent assessor concluding that it is in the best interests of Primelife's investors.
At 0340 GMT, Lend Lease shares were down 3.4 per cent at $10.40, while Primelife securities were up 5.5c, or 22 per cent, at 30c. The benchmark S&P/ASX 200 index was down 1.3 per cent at 4654.20 points.
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