This from www.egoli.com.au
Macquarie: MXG - Join the Dots...it’s Going Higher
6/02/2007
Trading Pick of the Day
Multiplex Group (MXG) confirmed a non-binding proposal by Brookfield Asset Management (BAM) for MXG’s operating businesses. A definitive bid is subject to the participation of the Roberts family (who hold 26%) in BAM’s offer. Macquarie Research Equities (MRE) have read BAM’s release, and believe they are essentially proposing a de-stapling, which MRE believe should be highly attractive to investors. MRE have reassessed their valuation using the de-stapling approach contemplated by BAM. The resultant $5.45–5.85 is intended to represent an aggressive estimate of what the Brookfield/Roberts cash bid for the group, along with a well floated externally managed trust, could ultimately be worth. MRE retain their Outperform recommendation.
The potential for a de-stapling, where investors retain trust scrip for the commercial assets as well as cash for the operating businesses, has the potential to be highly attractive to investors, in MRE’s view – a case of getting a fat slice of cake plus the chance to eat it too. A recapitalised trust is likely to trade at a ~20% premium to NTA (witness the office peers at 25%, and CDI the latest external trust to float at 19%).
MRE have reassessed their valuation using the de-stapling approach contemplated by BAM. The resultant $5.45–5.85 compares with MRE’s original break-up estimate of $5.00 and is intended to represent an aggressive estimate of what the Brookfield/Roberts cash bid for the group, along with a well floated externally managed trust, could ultimately be worth. MRE note that as at end last week an analyst sell-side consensus break-up valuation appeared to be around $4.90–5.20 (MRE were at $5.00).
The risks in the MXG trade are obviously increasing and at yesterday’s close the premium to our pre-takeover price target of $4.23 sat at 13% (as a reminder we’ve included that SOTP overleaf). However, given the strategic merit to Brookfield, its activities, public statements and the apparent involvement of the Roberts family, we can’t help but think that the aggressive de-stapling valuation is the one most worth focusing on.
Are the Roberts family sellers? Perhaps the question should be: have they already sold? The Roberts have stepped aside indicating they are now conflicted and have noted the merit of Brookfield’s approach – that indicates to us the likelihood of a full-blown offer. The wording of MXG’s release that “contemplates” their return isn’t exactly emphatic and in MRE’s view, leaves the door open for a sale and exit of the family either way. That would add complications, however, as BAM would then likely have to head down a takeover path (as opposed to a simpler scheme of arrangement). Reading the Roberts family release, it may well be too early to call.
Action and recommendation
Outperform – bidder identified. Likely bid format is attractive, and the Roberts family are involved and interested to the degree that they have stepped aside (short-term) due to conflicts. The risks are now clearly weighted to the upside for investors. A combination of recapitalised MXG trust scrip and cash could have a materially higher value than the market was implying at yesterday’s $4.80 close.
MXG
multiplex group
