Aevum Says Stockland Needs to Raise Bid 30% for It to Consider

Aevum Ltd. today said Stockland would need to boost its takeover offer by 30 percent before the retirement village operator will consider accepting the bid.

Sydney-based Aevum, which last week rejected a A$1.50 a share bid from Stockland, said it won’t consider an offer that’s less than its net tangible asset value of A$1.95 a share. Stockland, Aevum’s biggest shareholder, said today that attempts to hold talks had been spurned.

“There is no merit in further discussions or engagement unless Stockland is willing to contemplate a substantially higher offer that the Aevum board consider fair value,” Aevum spokesman Jim Kelly said in an e-mailed message. “We certainly aren’t going to contemplate a price at a discount to NTA.”

Stockland today reported full-year profit of A$478.4 million ($432.3 million) on increased sales in its residential communities business. Operating profit in its retirement living unit rose 13 percent to A$36 million and Stockland said Aevum would be a “very good strategic fit” for its business.

Stockland shares fell 1.1 percent to close at A$3.78 in Sydney trading. Aevum ended the day unchanged at A$1.66.

Aevum rejected Stockland’s A$266 million Aug. 2 offer, saying it undervalued the company.

While Stockland reserved the right to increase the offer for Aevum, in which it has a 16 percent stake, Managing Director Matthew Quinn reiterated today that it currently has no intention of doing so.

Bid Value

Aevum’s expectation of a bid in line with NTA doesn’t take into account the cost of doing business, Matthew Quinn, managing director of Stockland, said in a telephone interview.

“Overheads need to be incurred to run the business,” he said. “Unless the business can show there’s substantial goodwill or some kind of intangible value to compensate for the overheads, then discount to net tangible asset backing is the result of that.”

Rohan Sundram, an analyst at Austock Securities who has a “buy” rating on Aevum, values the company at A$1.96 a share through a method that takes into account both the costs of running the business and the inherent value in the retirement business, he said.

Aevum’s exposure to the New South Wales market, which makes up only 5 percent of Stockland’s retirement portfolio, will draw it back with a higher offer, Sundram said in a note today.

“The stage is set for Stockland to return with a higher, more realistic offer,” at close to Austock’s valuation, he said in the note.

Rates Concern

Quinn today said possible interest rate increases higher than half a percentage point could hurt Stockland’s future earnings.

“The biggest threat for sustained recovery both to the market and for us is potential increases in bank variable mortgage rates,” Quinn said on a conference call today. “We’re really hoping that bank variable mortgage rates don’t increase significantly. In our guidance, we have allowed for some modest increases and we do hope that will be the end outcome for the next couple of years.”

Underlying profit in the year to June 30 rose 10 percent to A$692.3 million, the company said. Analysts predicted a A$669.8 million profit, according to the median of five analyst estimates compiled by Bloomberg.

Stockland will pay 21.8 Australian cents per share for the full year, it said today. It expects earnings per share in 2011 to be 7 percent higher than its 2010 result, the company said.

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