Defence Document Published
January 07 2008 - 4:06AM
UK Regulatory
RNS Number:1830L
Bulgarian Property DevelopmentsPLC
07 January 2008
FOR IMMEDIATE RELEASE 07 January 2007
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR
FROM AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES
BULGARIAN PROPERTY DEVELOPMENTS PLC
("Bulgarian Property Developments", "BPD" or "the Company")
THE BOARD URGES SHAREHOLDERS NOT TO ACCEPT THE WINDSORVILLE OFFER
In the document posted to shareholders today, the Board of BPD makes the
following key points in urging shareholders to reject the bid from Windsorville
Investments Limited ("Windsorville"):
* The Windsorville Offer represents a discount to NAV of between 14.7
per cent. and 34.7 per cent. and, on a cash adjusted NAV basis, a discount
of between 21.6 per cent. and 45.9 per cent. based on conservative property
valuations
* The Windsorville Offer of 64p
. is clearly opportunistic
. is below the price at which BPD Shares were trading in the first half of
2007
. is at a premium of just 13.3 per cent. to the lowest price at which BPD
Shares traded in 2007
AND SHOULD BE REJECTED AS IT MATERIALLY UNDERVALUES THE COMPANY
* A general meeting of Shareholders to be convened to approve the
strategy for the return of up to 32p per BPD Share in cash to Shareholders
as soon as possible, following which the Board estimates BPD will have a NAV
of 49p per share, including some 22p in cash (for further details see "Cash
Returns" below)
Christian Williams, the Chairman of Bulgarian Property Developments, commented:
"The Colliers CRE valuation, adjusted for cash and other assets and liabilities,
results in a NAV on a Current Value basis of between 75p and 90p per BPD Share
(depending on the outcome of an application for an increase in density at
the Sofia Central Commercial Site) and of between 84p and 98p per share on a
discounted Gross Development Value basis (as set out in the preliminary
announcement dated 27 November 2007). These figures reflect the fact that the
Company has cash balances of approximately �26 million (equivalent to 24p per share).
"It is clear that the offer of 64p per share significantly undervalues BPD
Shares. The Board firmly believes that the offer from Windsorville should be
rejected and that the Board and the management team should be allowed to
continue with the policies which it has implemented since the flotation in 2005,
which have resulted in a significant increase in the asset base of the Company."
Enquiries:
Bulgarian Property Developments
Ivo Hesmondhalgh (Chief Executive) +44 (0) 7968 703 395
Keith Springall (Finance Director) +44 (0) 7973 177 095
Matrix Corporate Capital LLP (Nominated Adviser)
Stephen Mischler +44 (0) 20 7925 3388
Fairfax I.S. PLC (Adviser and Broker)
Simon Stevens +44 (0) 20 7598 4034
Cubitt Consulting
Simon Brocklebank-Fowler +44 (0) 20 7367 5100
Brian Coleman-Smith
James Verstringhe
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the Takeover Code (the 'Code'), if any
person is, or becomes, 'interested' (directly or indirectly) in 1 per cent or
more of any class of 'relevant securities' of BPD, all 'dealings' in any
'relevant securities' of that company (including by means of an option in
respect of, or a derivative referenced to, any such 'relevant securities') must
be publicly disclosed by no later than 3.30 pm (London time) on the London
business day following the date of the relevant transaction. This requirement
will continue until the date on which the offer becomes, or is declared,
unconditional as to acceptances, lapses or is otherwise withdrawn or on which
the 'offer period' otherwise ends. If two or more persons act together pursuant
to an agreement or understanding, whether formal or informal, to acquire an
'interest' in 'relevant securities' of BPD, they will be deemed to be a single
person for the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant
securities' of BPD, or by any of their respective 'associates', must be
disclosed by no later than 12.00 noon (London time) on the London business day
following the date of the relevant transaction.
A disclosure table, giving details of the companies in whose 'relevant
securities' 'dealings' should be disclosed, and the number of such securities in
issue, can be found on the Takeover Panel's website at
www.thetakeoverpanel.org.uk.
'Interests in securities' arise, in summary, when a person has long economic
exposure, whether conditional or absolute, to changes in the price of
securities. In particular, a person will be treated as having an 'interest' by
virtue of the ownership or control of securities, or by virtue of any option in
respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on the
Panel's website. If you are in any doubt as to whether or not you are required
to disclose a 'dealing' under Rule 8, you should consult the Panel.
Responsibility Statement
The Directors accept responsibility for the information contained in this
document, except that the only responsibility accepted by them in respect of the
information contained in this document relating to Windsorville and its
connected persons, which has been compiled from published sources, is to ensure
that such information has been correctly and fairly reproduced and presented.
Subject as aforesaid, to the best of the knowledge and belief of the Directors
(who have taken all reasonable care to ensure that such is the case), the
information contained in this document for which they accept responsibility is
in accordance with the facts and does not omit anything likely to affect the
import of that information.
BULGARIAN PROPERTY DEVELOPMENTS PLC
THE BOARD URGES SHAREHOLDERS NOT TO ACCEPT THE WINDSORVILLE OFFER
Background
On 19 September 2007, Windsorville announced that it had acquired a stake of
approximately 24.4 per cent. in BPD. Since that date it has continued to
purchase BPD Shares in the market so that as at 4 January 2008 it held
approximately 25.6 per cent. of the issued share capital of BPD.
On 14 December 2007, Windsorville announced an unsolicited cash offer for the
issued and to be issued share capital of BPD at a price of 64p for each BPD
Share and on 24 December 2007 Windsorville posted its offer document. This offer
has been made despite the Board having announced that, if an offer were to be
made at that level, the Board would not be in a position to recommend any such
offer as the Directors believed that it materially undervalued the Company.
The letter posted to shareholders today sets out why the Board believes that the
Windsorville Offer materially undervalues BPD and explains the Board's reasons
for unanimously recommending that Shareholders reject this opportunistic offer.
BPD
BPD was floated on AIM in January 2005 to invest in commercial property
development opportunities in Bulgaria. Since incorporation, BPD has raised
approximately �61.5 million (before expenses). This money has so far been
invested in 15 sites in and around the commercial centres of Bulgaria and one
small residential site. The ability to identify and successfully purchase sites
such as these is a key strength of the management team.
Shareholders are no doubt aware that BPD currently has approximately �26 million
of net cash. This should allow BPD to develop its existing portfolio of
development stock in phases without having to rely on high levels of bank
borrowing. Alternatively, it would allow BPD to purchase any properties that may
be sold at fire sale prices.
Valuation
In light of a potential offer from Windsorville, the Board instructed Colliers,
London, to conduct an independent valuation of BPD's existing portfolio on a
number of different bases.
The results of the valuation were summarised in BPD's preliminary announcement
on 27 November 2007 of results for the year ended 30 June 2007 as follows:
"Colliers' valuation as at 26 November 2007 resulting in:
* Net Asset Value (''NAV'') of 75p per share on Current Value basis
* NAV of between 84p and 88p per share on discounted Gross Development Value
If successful, BPD's application for an increase in density at the Sofia Central
Commercial site would result in:
* NAV of 90p on Current Value basis
* NAV of between 89p and 98p per share on discounted Gross Development
Value basis."
On 12 December 2007, Colliers published its valuation certificate as required
under Rule 29 of the Code. This is reproduced in the document posted to
shareholders and is available on request from Matrix Corporate Capital LLP on
020 7925 3388 or Cubitt Consulting on 020 7367 5100.
On a Current Value basis, the Windsorville Offer Price of 64p per BPD Share
shows a considerable discount to NAV per share of between 14.7 per cent. and
28.9 per cent.
BPD currently has approximately �26 million in cash, equivalent to 24p per BPD
Share. Windsorville, therefore, is effectively offering 40p per BPD Share for
BPD's net assets (excluding cash) (''Adjusted Offer Price''). Stripping the cash
out of the NAVs above ("Adjusted NAV") results in the following:
Adjusted Adjusted
NAV per Offer Price
BPDBgarian
Property
Developments
BPD Share discount to
Adjusted NAV
Adjusted NAV on Current Value basis
(75p NAV per BPD Share less 24p cash per BPD 51p 21.6%
Share)
Adjusted NAV on discounted Gross Development
Value ("GDV") (84p to 88p discounted
GDV per BPD Share less 24p cash per BPD Share) 60p-64p 33.3% to 37.5%
As a result of discussions which have been held with the Municipality of Sofia,
the Board is confident that BPD's application for an increase in the density at
the Sofia Central Commercial site will be successful, in which case the figures
would be as follows:
Adjusted Adjusted
NAV per Offer Price
Bulgarian
Property
Developments
BPD Share discount to
Adjusted NAV
Adjusted NAV on CV basis
(90p NAV per less 24p cash per BPD Share) 66p 39.4%
Adjusted NAV on discounted GDV basis (89p to 98p
discounted
GDV per BPD Share less 24p cash per BPD Share) 65p-74p 38.5% to 45.9%
Potential Valuation Upside
The Board believes that Colliers has been conservative in a number of areas:
Capital and rental uplift
When calculating the GDVs of each of BPD's properties, Colliers has made various
assumptions as to the time that each development will take, and in some cases
these span up to six years, but has assumed that rents and capital values remain
constant over the entire period. The Board believes that it would be reasonable
to expect that both rents and capital values will rise over such a period,
especially as the Bulgarian GDP is forecast to grow at between 4.7 and 6.2 per
cent. per annum in the six years ending 31 December 2012.
Portfolio uplift
The Colliers valuation of BPD's current portfolio is simply the sum of the
individual property valuations. It would take any developer a long period to put
together a development portfolio such as BPD's and the Board, therefore,
believes that many purchasers might be prepared to pay a premium to be able to
purchase a single portfolio rather than having to accumulate sites over an
extended period.
Developer's profit
The Board believes that Colliers, when valuing properties on a Current Value
basis, has been conservative in the amount that it has assumed that any
potential purchaser would require by way of developer's profits. In the case of
the Sofia Central Commercial site, Colliers has assumed that a developer would
require a developer's profit of 45 per cent. If a developer's profit of 30 per
cent. is assumed, the Company's NAV would increase by Euros 11.5 million,
equivalent to 7.6p per BPD Share.
Management and Employees
BPD has an excellent management team. Its strong local team allows it to source
property opportunities that many other companies would find hard to locate,
whilst its AIM quotation and the wide experience of the UK Directors (both
non-executive and executive) ensure that the Company is run according to UK
corporate governance standards.
The Directors have noted the comments made by Windsorville regarding the
Company's employees and that Windsorville intends that BPD will serve as a
platform for further investment in the region and possibly for broader
investment into Eastern Europe.
The Bulgarian Market
Bulgaria continues to offer attractive investment opportunities including:
* High GDP growth prospects over the next few years: GDP is forecast to
grow at between 4.7 and 6.2 per cent. per annum in the six years ending 31
December 2012, well ahead of Western Europe and most of its South Eastern
European peer group.
* Excellent growth prospects for the commercial property sector: the
property market in Bulgaria is experiencing strong international investment
interest, supported by its geographic location at the crossroads of Europe,
the Middle East and Asia. Five out of ten Pan-European transport corridors
pass through Bulgaria. This is being recognised by significant EU funded
infrastructure investment of Euros 731.5 million on five infrastructure
projects including a second bridge over the Danube near Vidin (where one of
BPD's sites is located), the Sofia airport development, and upgrades to three
of the Pan-European Transport corridors.
* High rates of growth in personal disposable income: a steady increase
in local wages is leading to an increase in disposable personal income which
will support existing buoyant consumer spending. From January 2000 to June
2007, the average officially reported monthly wage has nearly doubled from
Euros 102.5 to Euros 204.
* Low taxes: corporation tax rates have fallen from 15 per cent. in 2006
to 10 per cent. in January 2007 and income taxes are set to decline from
between 20 and 24 per cent. to a flat rate of 10 per cent. during 2008.
* Significantly lower prime office rents: in Sofia prime office rents are
between 12.5 per cent. and 56 per cent. lower than most capital cities in
adjacent countries.
The Board believes that all of these factors combine to make Bulgaria one of the
more attractive commercial property investment opportunities in Europe and one
in which BPD is a significant player.
Share Price Outperformance
In the 12 month period leading up to 18 September 2007, the date immediately
prior to the commencement of the Offer Period, the Company outperformed the
following indices:
* UBS European Real Estate Index by 11 per cent.;
* ABN Amro Eastern European Top 20 Index by 14.5 per cent.; and.
* Bloomberg Eastern European Index by 6.0 per cent.
Strong Fundamentals
Many property companies have substantial leverage. A fall in property values has
a much greater effect on the NAV of highly leveraged companies.
For example, consider a company with a single property asset worth �100 funded
as to �20 in equity and �80 in debt. Its NAV is �20 (�100 worth of property less
�80 in debt). If property prices fell in value by 5 per cent. (to �95) the
company's NAV would fall from �20 to �15 (�95 worth of property less debt
unchanged at �80), a fall of 25 per cent.
Contrast this with BPD, which has no net debt. In the same circumstances as
described above its NAV would have fallen by only 5 per cent.
Cash Returns
The Company was set up for long term investment to generate returns from the
development of properties in Bulgaria and the Board remains of the view that
this is the optimal strategy. However, in light of both difficult market
conditions for property companies generally and the fact that the Windsorville
Offer values the Company at a substantial discount to the value of the Company's
assets, the Directors have been considering how the Company could reconcile
maximising long term shareholder value with providing significant cash returns
in the nearer term.
Accordingly, if the Windsorville Offer does not become unconditional the Board
proposes to call a general meeting of the Company to approve the Board's
strategy. Prior to convening the general meeting, the Directors will hold
discussions with BPD's major Shareholders with a view to understanding their
preferences and achieving a consensus as to the wishes of Shareholders. The two
potential routes forward are either for the Company to continue with its
existing strategy or to return some cash to Shareholders. The Board currently
envisages that at the general meeting the resolutions to be proposed will
include (i) a resolution to sell certain properties, most probably including the
Sofia Central Commercial site once planning consent for increased density has
been secured, and return the distributable profits which arise in cash to
Shareholders and (ii) a resolution to apply to the Court to capitalise part of
the Company's share premium account and return cash to Shareholders.
It is the Board's current belief that these resolutions, if passed, should
result in the return of up to 32p per BPD Share to Shareholders.
The Directors believe that this would leave Shareholders with a company with a
NAV of approximately �53 million (49p per share) of which some �24 million (22p
per share) would be in cash, before taking account of cash balances invested in
additional properties in the meantime.
After such a return, the Company would remain a significant property development
business in Bulgaria capable of developing and acquiring additional properties
for the benefit of Shareholders.
The Directors also believe that for a successful specialist group with an
experienced management team, such as BPD, opportunities exist not only to
acquire property assets at attractive values but also to act as a consolidator
of other property businesses operating in Bulgaria.
Conclusion
The Board believes that Windsorville is taking advantage of the current weak
state of the property sector (which has many companies trading at substantial
discounts to published NAVs) to make an opportunistic offer for a cash rich
company with a strong balance sheet and an extensive and valuable portfolio
entering its development phase.
The Directors, who have been so advised by Matrix and Fairfax, are firmly of the
view that Shareholders would be best served by rejecting the Windsorville Offer
and backing the Board to deliver superior value. Accordingly, the Directors
unanimously recommend that Shareholders reject the Windsorville Offer as they
will do in respect of their beneficial shareholdings amounting to, in aggregate,
512,002 BPD Shares, representing approximately 0.5 per cent. of the Company's
issued share capital. In providing their advice, Matrix and Fairfax have taken
into account the commercial assessments of the Board.
DEFINITIONS
"AIM" the market of that name operated by London
Stock Exchange plc
''Board'' or ''Directors'' the board of directors of the Company whose
names are set out in the document sent to
shareholders today
''BPD Shares'' ordinary shares of 25p each in the capital of
the Company
''Code'' the City Code on Takeovers and Mergers
''Colliers'' Colliers CRE, property valuers
''Current Value'' or ''CV'' Colliers' estimate, as at 12 December 2007,
of the market value of a site in its current
condition, on the basis that appropriate
approvals for the proposed developments is
received
''Fairfax'' Fairfax I.S. PLC, joint financial adviser to
BPD
''GDP'' gross domestic product
''Gross Development Value'' or Colliers' estimate, as at 12 December 2007,
"GDV" of the value of a development had it been
completed and fully let
''Matrix'' Matrix Corporate Capital LLP, nominated
adviser and joint financial adviser to BPD
''Offer Document'' the offer document issued by Windsorville in
respect of the Windsorville Offer on 24
December 2007
''Offer Period'' the offer period for the purposes of the
Code, which commenced on 19 September 2007
''Offer Price'' 64p per BPD Share
''sqm'' square metre
''Windsorville Offer'' the cash offer to acquire BPD made by
Windsorville
This information is provided by RNS
The company news service from the London Stock Exchange
END
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