Argosy independent directors urge buyout first

The Meridian Energy building in Wellington is part of DNZ's property portfolio. Photo / supplied

Argosy Property Trust's independent directors say buying out its management contract from ANZ Bank-owned OnePath will put it in the strongest position to consider all future proposals, including DNZ Property Fund's takeover bid.

"We have an open mind to a potential future merger with DNZ, should that be earnings and value accretive to unitholders," said directors Trevor Scott and Peter Brook in a letter to unitholders.

DNZ has said if it took over the trust it could save Argosy investors up to $5 million a year.

"At this time, however, our central focus remains on the strategic initiative to internalise the management contract in the most effective and timely manner. Not proceeding down this track reopens the ability for OnePath to sell the manager/management contract to a third party," they said.

OnePath is asking $32.5 million to terminate the management contract which the trust would pay through on-going property sales and existing bank facilities.

The independent directors said the trust's manager is negotiating to increase its maximum gearing to 50 per cent from 45 per cent currently, although the trust's objective is still to maintain gearing below 40 per cent over the medium term.

"We are firmly of the view that internalising the management contract is likely to create the greatest value and strongest position for unitholders from which to consider all future proposals, including that outlined by DNZ," the independent directors said.

"We see no compelling reason to act with the haste DNZ is urging. Moreover, should any discussions be advanced, they will be done so on a basis that recognises Argosy's relative strengths," they said.

They said they are seeking confirmation from the Inland Revenue Department that the price paid for the management contract will be tax deductible, "the impact of which would provide additional value to unitholders."

Grant Samuel & Associates has been engaged to produce an independent report on the internalisation proposal and Argosy investors will be asked to vote on it at a meeting in July or early August.

The directors have not asked for an opinion on the merits of DNZ's proposal.

Analysts have suggested OnePath's asking price may be too high. Chris Byrne at Craigs Investment Partners says while the position isn't black and white, "you could argue it's too high."

Jeremy Simpson at Forsyth Barr says the $32.5 million price "looks to be in the ball park, based on recent transactions, but is on the high side."

Last year, DNZ paid chief executive Paul Duffy and Alastair Hassell $35 million to buy out its management contract which, unlike Argosy's, had given them a right of veto over the investors' wishes.

Argosy units are trading at 85 cents, down one cent from yesterday which was their highest price in nearly three years.