FDC (ASX) News: Federation Centres &amp; Novion announce merger

Originally posted by defabs ↑

Hi All,

I'm fairly new to this stock and this board hehe

The merger/reverse takeover, however you want to put it is an absolute disgrace and not in any interests of shareholders.

I just wish there was a way to oppose this like we were successfully able to do a few years back with the whole debt to equity swap for cnp secured debt holders.

The synergies they are going on about can be realised by FDC simply by entering into new long date interest rate hedges. It is as simple as that.

Bond yields are at an all-time low so the cost of borrowing for REITs will continue to decrease.

Our weighted hedging rate is in the high 4s but will continue to decrease whereas notion is in the 5s.

We have a much stronger ICR ratio as well.

They intend to break the interest rate hedges once it takes over Novion paying millions and millions of dollars and then entering into new hedges.

Also, they say that the div per share will increase to 18.3c per year, up 9% from current DPS but this is because the payout ratio will be 95% instead of 93% and also the gearing will increase from 25% to 31%.

If FDC elected to increase its gearing to 31% alone and increase its payout ratio, the DPS would be considerably higher than the dividend they will pay in the merger.

It completely goes against the strategy of what they have been trying to do in recent years. Why the hell would you want to pay 30% premium to book value for assets which are already subject to fairly tight cap rates and divest in 50% of a good majority of your assets at book value. Even the sale of Mildura which has very high growth prospects was sold at a yield about 7% is puzzling given how cheap the cost of debt is.

The board have completely lost my confidence after this call.

The questionis what can be done about it?!

Cheers

Expand

That is a massive point about the increase in gearing. Surely the market won't cop that...we've worked so hard to get back to this point. I'm surprised Rufrano didn't also comment on that when he had the chance in the AFR article.

glad to hear you are still watching proceedings Defab, very nice to see your contribution. Still think you should be on the FDC board.