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Colonial launches a TOB for Axiare

Colonial has announced today that it has bought an additional 13% in Axiare for a price between €18.25 and €18.5/share. As a result, Colonial currently owns a 29% stake in Axiare. In addition, the board of directors of Colonial has approved launching a take-over bid for the remaining 71% stake at a price of €18.50/share. The offer is conditioned to surpass the 50% acceptance (including the 29% stake owned pre tender offer).

The acquisition of the additional 13% has been financed by cash and undrawn facilities (€193Mn) and the TOB for the remaining 71% stake will be financed by a bond issue of €800Mn and a capital increase of €450Mn (c.15% of its current market cap).

Positive for Axiare

The news is positive for Axiare given that the offer price is 13% higher than its last closing price (€16.36/share) and 21% higher than the Axiare’s NAV at June 2017 (€15.32/share). We recommend to Accept the Bid due to the offer price is well above our valuation (€14.40/share).

Negative for Colonial

The deal is dilutive for Colonial in terms of NAV by –6.8% to €7.52/share from €8.07/share in June 2017. It does not take into account the possible discount of the capital increase, something that could make it even more dilutive. The slightly positive impact on gross yields (to 3.2% from 3.0%) is not justified by the higher risk profile of Axiare’s portfolio, with exposure to retail, logistics and offices partially located in Madrid’s secondary and periphery locations.

After the deal, Colonial will have a GAV of €10,662Mn and a NFD of c.€5,000Mn, implying a LTV of 47%. We do not rule out the deal to affect to its current rating (BBB by S&P). Afterwards, we expect Colonial to reduce the debt by selling non-core assets (retail and logistics), that we worth at €385Mn.