Quintain Estates Under Offer

12th Aug '15 by Fat Prophets

4 comments 8046 reads

Property developer Quintain Estates is developing residential apartment blocks next to Wembley stadium. With demand for London housing outstripping supply the group is well placed. It not surprising, then, that Quintain has received a takeover offer but the valuation appears low.

Takeovers are the closet the city comes to war with two sides fighting it out. In the case of Quintain Estates there hasn’t been much of a fight yet with the company’s directors recommending a 131p cash offer.

Quintain is developing Wembley Park

Source: Quintain Estates

This leaves it up to Quintain Estates’ shareholders as to whether they accept the valuation arguments from the company. In our view, it is likely that Quintain’s shareholders will hold out for a higher price.

If the offer falls through then Quintain’s share price could fall back to the pre-bid level of 107p. However, the potential acquirer, Lone Star, looks set to be a determined bidder.

In the recent case of Dragon Oil the initial offer from ENOC was set at 735p a share. This was later increased to 750p a share and then finally 800p to clinch the deal with Dragon Oil’s shareholders.

Quintain Estates profile

Property development is a sector that booms in the good times and comes close to bankruptcy in downturns. This is because developers have projects that aren’t generating an income and use debt financing.

When the music stops these two attributes leave real estate developers with nowhere to hide. Quintain Estates certainly faced the music in the financial crisis with its share price falling from 450p in 2007 to 4p in 2009.

Quintain has recently been reducing its gearing level with it at 32% in March 2015 versus 87% in March 2012. The net asset value (NAV) per share has increased in the last two years and hit 122p at March 2015.

Quintain de-risks and returns to NAV growth

Source: Quintain Estates

Quintain is now focused on Wembley Park in London with this area 77% of its asset exposure at March 2015. Wembley investment assets are 33% of total assets and development land is 42% of total assets.

Land in development at Wembley is 5% of assets and outside of Wembley the London investment portfolio is 11% of assets. As such Quintain is a bet on the London property market and in particular Wembley Park.

Quintain Estates asset…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Maddox

14th Sep '15

Hi Andrew,

Spot-on analysis, shareholders have nothing to lose from rejecting this offer - 131 p is just far too low.

After failing to secure sufficient acceptances to their low ball offer Lone Star and QED’s Board, with whom they are in cahoots, have given shareholders the opportunity to reject it all over again! They only managed to get 53% acceptance first time round – way short of the 75% they need to force unconditional acceptance of the deal. Many of the acceptances will have been ‘default accepts’ by the Nominee in view of the Board recommendation. A no vote is the more considered option and so it is a clear and unambiguous rejection to the Board’s recommendation.

With house price inflation figures being revised upwards Lone Star’s 131p offer is looking increasingly unattractive. Despite the market jitters, it is highly unlikely they will get many further acceptances. So, Lone Star will need to re-consider what price they will have to pitch to get sufficient Institution Investors on-board to close the gap. And the wider the gap and more emphatic the rejection the higher they are likely to bid.

So vote early, vote NO!

Regards, Maddox

Andrew L

17th Sep '15

Maddox,

Interesting that 53% accepted the 131p cash offer. Crux is whether they can get to 75% as this would mean de-listing and would likely force the hold-outs to accept. That was certainly the case for Songbird Estates which was taken over at a fairly low price.

The arguments for accepting the takeover seem so shallow and ridiculous. I.e. because the shares were previously trading at a discount to NAV. So what? Investment sentiment can change and has been changing towards Quintain Estates.

Even if the offer fails and the shares go back to 107p it is still probably better for investors than accepting now. The NAV at March 2015 was 122p. Just seems amazing to me that Quintain's board and management would recommend this offer. I can't understand their argument for doing so.

Fegger

I hope the offer doesnt succeed. If it does I will be interested to see the payments made and jobs offered to the current board and management. As we have seen for some time Quintain has been run very much for managements benefit. It would seem that the takeover offer may be no different.

25th Sep '15

Offer increased to 141p cash. Crux is what Elliot chooses to do. I think there is now a good chance that the offer will succeed. Probably a good chance they will get the 75% level we will find out on the 30th September.

Quintain Estates under offer

Unlock the rest of this article with a 14 day trial

About the Author

Fat Prophets

4 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...