Teleios Capital Partners LLC Writes to the Supervisory Board of Immofinanz AG Regarding Serious Concerns; Requests Strategic Review Process

Teleios Capital Partners LLC (“Teleios”), an investment adviser to various funds which hold shares in Immofinanz AG (the“Company” or “Immofinanz”), confirms that it has written a letter (“the Letter”) to the Company’s supervisory board (the “Board”) to express its serious concerns regarding recently reported developments involving CA Immobilien Anlagen AG, O1 Group Limited and affiliated concert parties (collectively “CA Immo”, or the “Bidder Group”). The full text of the Letter can be found at http://www.teleioscapital.com/doc/20150331_IIA_TeleiosLettertoBoard.pdf

On 16 March 2015, the Bidder Group announced its intention to make a partial voluntary tender offer to Immofinanz shareholders to acquire up to 150,893,280 bearer shares, corresponding to approximately 15.0% of the Company’s issued share capital, at an offer price of €2.80 per share (the “Tender Offer”). The Bidder Group announced on 23rd March that it had already accumulated an interest of 3.7% in the Company’s outstanding shares. This was followed two days later by a statement from the Federal Competition Agency that CA Immo intends to ultimately acquire a stake representing at least 25% of the Company’s voting rights.

Igor Kuzniar, Managing Partner of Teleios said:

“We have reason to believe that numerous other Immofinanz shareholders share these concerns, and that it is appropriate to bring them to light in the public domain given their broad significance and exceptional urgency.

In less than three weeks’ time, on 15 April 2015, the acceptance period for the Tender Offer will end. If it succeeds, the Bidder Group will have acquired a voting interest of 18.7%, in addition to any further share purchases that it makes in the meantime. Further share buybacks by Immofinanz, such as those announced on 26 March 2015, will further increase this percentage.

The Board publicly acknowledged in the motions document for the Company’s EGM that if the Bidder Group succeeds in amassing such a large interest, they will wield significant influence over the Company, most likely to the point of exercising effective control. Therefore through the Tender Offer, shareholders run the risk of effectively ceding control of Immofinanz to CA Immo, without receiving any commensurate control premium in return.

Furthermore, we believe that CA Immo’s longer term ambitions, as a direct competitor of Immofinanz, are likely to diverge significantly from those of other shareholders. For example, through its augmented level of influence, CA Immo may be able to block a future sale of the entire company to an international real estate group that it considers a threat, despite such a transaction being of demonstrable benefit to all other shareholders.

We therefore believe that the Tender Offer constitutes a creeping takeover attempt which will deny shareholders the control premium they deserve, and will introduce significant conflicts of interest and governance issues so as to risk permanently impairing the long term value of Immofinanz. With the Letter, we have called on the Board to take urgent steps to ensure that these very possible consequences do not transpire as a direct result of its inaction.”

On 23 March 2015, the Board and management of Immofinanz (“Management”) announced an intention to make a voluntary partial public offer for the purchase of a minority interest of up to 29% of the outstanding share capital in CA Immobilien Anlagen AG (the “Counter-Offer”), the main constituent of the Bidder Group, in a move that seemed to mirror the Tender Offer made by the Bidder Group to Immofinanz’s own shareholders.

Igor Kuzniar, continued:

“We find the rationale for this action unclear: the case has not been made for using over EUR 500 million of liquid Company funds to acquire an illiquid minority stake which seems unlikely to confer any strategic or operational benefit for the foreseeable future. If the Board’s intention is to set the stage for a combination of the two companies, then this ought to be approached in the context of a fully-fledged offer process to ensure that a complete transaction and the corresponding strategic and synergy benefits are secured before Immofinanz becomes financially entrenched: the Counter-Offer risks this entrenchment occurring in the absence of any subsequent consolidation.

We feel that the Counter-Offer also risks exacerbating the dilemma posed to Immofinanz shareholders by the Bidder Group’s Tender Offer. As the logic behind the Counter-Offer has not been spelled out to shareholders and the broader investment community, we believe that the resulting concern and confusion will weigh on the Company’s share price at this critical time, adding to the perceived attractiveness of CA Immo’s Tender Offer valuation and its likelihood of succeeding.

We interpret Management’s recommendation that shareholders reject the Tender Offer from CA Immo, and its intention to reduce the mandatory bid threshold to 15% of share capital, as indicative that Management and the Board ultimately share our concern.

We believe that these measures alone, however, are insufficient and unlikely to prevent the Tender Offer from succeeding. As the Company’s shares currently trade below the offer price, individual shareholders may well make the short-term choice to take advantage of the limited upside that it represents without fully considering the aggregate consequences of their actions. Lowering the mandatory bid threshold will have limited effectiveness in this regard as it would only come into effect following the Extraordinary General Meeting on 17th April (the “EGM”), which occurs after the Tender Offer period has concluded.

Similarly, we believe that the Counter-Offer lacks a clear strategic foundation and will likely prove an ineffective deterrent, so the corresponding motion for the impending EGM should be withdrawn by the Board.”

In the Letter to the Board, Teleios expressed that it feels that the Board has a fiduciary responsibility to ensure both that shareholders are properly informed of the possible ramifications of the Tender Offer, and that other strategic alternatives to maximise shareholder value are given appropriate consideration. Teleios suggested that such alternatives may include a partial or complete sale of individual business units, a split-up or demerger plan, a sale of the entire company to a trade buyer, or a take-private scenario, or indeed forgoing any such transaction and retaining the current group structure.

Igor Kuzniar, continued:

“We request that the Board undertake to formally evaluate these and possibly other alternatives through a strategic review process, with the objective of ultimately presenting shareholders with a more compelling and substantiated proposition than its present course, which risks by default ceding effective control to a competitor for a consideration that we and the Board deem to be wholly inadequate.

In performing this exercise, it would be appropriate for the Board to be advised by an internationally recognised investment bank, which we strongly feel should be mandated as soon as possible before 15 April 2015, the final date of acceptance of the Tender Offer. Every single day of inaction increases the risk that shareholders, unaware of such deliberations, irrevocably tender their shares. Accordingly, we would be grateful if the Board could publicly confirm as soon as possible that it is supportive of undertaking a strategic review, and which investment bank it proposes to retain.”

It is important to emphasise that Teleios is not, at this stage, calling upon the Board to initiate a break-up or sale or any other restructuring of Immofinanz, as it believes that the information to decide which of these alternatives appears best suited to protect shareholder value has not yet been obtained. Teleios has merely requested that the Board conducts an objective review, with appropriate professional advice, of strategic options to preserve and enhance shareholder value in the face of the imminent threat to the Company’s independence that it believes the Tender Offer from CA Immo may pose.

To view this piece of content from cts.businesswire.com, please give your consent at the top of this page.

Contact information

Camarco (PR advisors to Teleios Capital Partners)
Ed Gascoigne-Pees
+44 (0)203 757 4984
+44 (0)788 400 1949
ed.gascoigne-pees@camarco.co.uk
or
Hazel Stevenson
+44 (0)203 757 4989
+44 (0)798 600 9720
hazel.stevenson@camarco.co.uk