A unitholder in the listed Vitalharvest Freehold Trust has expressed concerns over a proposed takeover of the vehicle by an agriculture fund managed by Macquarie Infrastructure and Real Assets.
MIRA offered A$1 ($0.77; €0.63) per unit in November 2020 by way of scheme of arrangement, in a deal worth approximately A$185 million. MIRA also offered to acquire all the Australian Securities Exchange-listed company’s assets for A$300 million should the the scheme fail to be approved by shareholders.
Primewest, a listed fund manager that specializes in real estate and the largest unitholder in the trust with a 19.87 percent stake, said that it would vote to back the MIRA bid, despite only taking control of Vitalharvest’s management rights itself in June 2020.
Investors Mutual, which holds a 3.6 percent stake in Vitalharvest, raised concerns about the bid this week in a letter to Perpetual, the responsible entity of Vitalharvest which has also backed the MIRA offer.
Investors Mutual portfolio manager Marc Whittaker told Agri Investor: “We’re looking for a bid that’s fair and reasonable, and under the current conditions it is neither. It’s unreasonable in the sense that it undervalues what we think is the true value of the company – we would argue A$1.20 per share would be closer to fair value.
“And we would argue it’s unfair because of a lack of transparency around the process. The full reasons for the responsible entity endorsing the bid up to this time are not well understood and there’s a significant information asymmetry between the majority of investors in the trust, who are mum-and-dad and unsophisticated investors, and the likes of Costa and MIRA who are more professional.”
There is also concern that the offer included a ‘no shop, no talk’ clause hampering the ability to attract a potential rival offer.
Vitalharvest’s assets are 100 percent leased to Costa Group, one of Australia’s largest listed agribusinesses and food producers, on an initial 15-year term that started in 2011. Costa holds an option to extend the leases for another 10 years from July 2026.
Agri Investor understands that the current lease arrangement contains fixed and variable components, and that a renegotiation of the lease with MIRA will change the lease to a fixed agreement, reducing revenues for the asset owner in good years but providing greater certainty year-to-year.
Part of Investors Mutual’s argument is that Primewest would likely have been able to negotiate a similar agreement with Costa but that it has not been afforded the opportunity to do so, denying current unitholders the ability to realize that value. Investors Mutual said the terms of the new lease agreement have not been disclosed.
Primewest said it did not comment on speculation and referred enquiries to Perpetual. MIRA also declined to comment.
A spokeswoman for Perpetual told Agri Investor it is “finalizing a scheme booklet which will provide detailed information and analysis, including an independent expert’s report, to assist unitholders in further considering the proposal and making an informed decision.
“We have consistently sought to ensure that unitholder value is maximized.”
A source familiar with the deal disputed the suggestion that Primewest had not had the opportunity to strike a deal with Costa, saying that the firm was offered the chance to renegotiate the leases when it took over the management rights in June 2020. The source emphasized that Primewest had been unable to complete that negotiation, for whatever reason, so the MIRA offer represented a chance to crystallize value for unitholders without risking further negotiations failing to yield agreement.
The source also said they believed many retail shareholders on Vitalharvest’s register were independently supportive of the MIRA bid.
At the time of its offer, MIRA said the scheme of arrangement represented an 11.8 percent premium to Vitalharvest’s adjusted net asset value of A$0.894 per unit, a 27.4 percent premium to Vitalharvest’s closing unit price on November 6 of A$0.785, and a 29.5 percent premium to the 30-day volume weighted average price of A$0.772. MIRA said the A$1 per unit offer was greater than Vitalharvest’s highest closing price since January 9, 2019.
Investors Mutual argued that the real value of the scheme of arrangement is less than A$1 per share because unitholders should be entitled to a special distribution as part of a sale, and MIRA’s bid does not include one.
“Operating conditions improved significantly [in 2020], the drought has broken, production is increasing, and prices are increasing,” Whittaker said.
“Costa is benefiting from that improvement in conditions as well. For MIRA to bid for these assets at depressed prices, with bottom-of-the-cycle earnings, at 1 times net tangible asset value, is not a generous offer by any means.”