city pacific goes cherry picking

Wheels & Deals
1:16 PM Feb 14, 2008


Giles Parkinson

City Pacific goes cherry picking

City Pacific has returned to the negotiating table with the now clearly distressed MFS, but it is no longer interested in the entire financial services group and intends instead to cherry pick the best assets.

The terms of a due diligence agreement have been hammered out, including exclusivity and a break fee to cover City’s costs, and the data room has been opened. Despite the appearance of a number of tyre-kickers, City is the only party to express firm interest in the MFS assets.

City Pacific, which is still advised by Equity & Advisory, but is no longer using Babcock & Brown because of the smaller nature of the proposed deal, has already foreshadowed it is only interested in a “nominal up-front cash consideration” for any purchases, with the remainder being deferred and contingent on the retention of investor funds.

That’s a big change from the $833 million in stock it was offering just one month ago.

Quite how such a deal would fit in with the demands of MFS’ own bankers and the 333 Capital team involving Mark Korda and Mark Mentha remains to be seen.

The most attractive asset for City is the MFS Premium Income Fund, which generates about $15 million in fees from its $770 million loan book. The fund has suspended redemptions and its value is thought to be around $80-$90 million.

City is also looking at a number of the other funds within the MFS umbrella.

However, it won’t be looking at the real estate investment banking arm led by Joseph Gersh, who is still smarting from selling his Gersh Investment Partners business to MFS and taking the majority of the estimated $100 million in the form of MFS stock escrowed to the middle of this year.

Gersh, a former senior partner at Arnold Bloch Liebler, is the founder and principal deal-maker of the 10-strong team, is presumably canvassing his own options.

Similar uncertainty remains for the corporate advisory and M&A unit headed by ex-Freehills partner Luke Gannon. The 12-strong team has had a hand in most of MFS’ major transactions in recent years, including the purchase of Gersh Investment Partners, S8 and Sun Kids Child Care.