By Maggie Lu Yueyang
Australia's Australand Property Group said on Wednesday it had rejected as undervalued a A$1.95 billion ($1.83 billion) proposal from bigger rival Stockland Group to increase its stake, thwarting Stockland's move to expand its residential business.
Australand has been seen as a takeover target since Singapore's CapitaLand Ltd said it wanted to sell what was a 59 percent stake in early 2013, while Stockland has been seen as a likely buyer to cement its position as one of Australia's biggest property companies.
The Australand board said the proposal, which offered 1.111 Stockland shares for every Australand share that Stockland does not already own, was not compelling and had not provided "sufficient consideration to Australand securityholders in the context of a change of control".
The board also decided to deny Stockland access to due diligence, and recommended Australand shareholders take no action at the moment.
The proposal, which implies an offer price of A$4.20 for each Australand share, also represented a discount to its stock's closing price on Tuesday, Australand said. The Stockland offer values Australand at A$2.43 billion.
Australand shares slipped 0.1 percent to A$4.28 at 0336 GMT (11.36 p.m. EDT on Tuesday), while Stockland fell 0.4 percent, against a 0.5 percent rise in the broader market.
"It will be a great unknown in terms of what price will be favourable. They've got attractive assets," said Grant Berry, portfolio manager at Melbourne-based SG Hiscock & Co Ltd that owns both Australand and Stockland.
This is the second takeover proposal that Australand has rejected in the past two years. The company turned down an unsolicited approach from bigger peer GPT Group in December 2012, saying it did not provide a sufficient premium.
Stockland said its bid represented an 18 percent premium to Australand's stated net tangible assets per share. It said the deal had "compelling strategic merit."
Australia's residential market has been boosted by record low interest rates over the past year, with home prices up 11 percent across the country and 15 percent for Sydney.
"If investor price expectations are too high, we will sell and realise a profit," Stockland's Managing Director and Chief Executive Mark Steinert said in a statement. Stockland bought a 19.9 percent stake in Australand in March.
Australand was advised by Fort Street Advisers, Macquarie Capital and King & Wood Mallesons, while Stockland has engaged Citigroup, Merrill Lynch and UBS.