Valad impaled as Blackstone bids

US private equity firm Blackstone has agreed to buy Australian property firm Valad Property Group in a deal valuing the target at $207 million, Valad confirmed today.

Valad, a real estate investment group with an international network of offices managing $8 billion in seven geographic regions, is laden with debt with its gearing at 51.3 per cent as of December 31, 2010.

Valad said in a statement Balckstone had offered $1.80 per security. Shares of Valad, which went into a trading halt yesterday, ended at $1.16 on Wednesday.

The offer is via a scheme of arrangement and was unanimously recommended by the board. The deal requires a vote by VPG security holders, which is anticipated to be held early in Valad's 2011-12 financial year. Valad expects investors to receive merger documents in June.

The bid means investors in the embattled Valad may finally see a positive outcome.

The offer is expected to involve the unravelling of the group's complex funds management business. But it would give the US group an easy entry into the Australian and European commercial and residential property sectors.

Valad's key asset remains Goldfields House at 1 Alfred Street, Circular Quay, which it planned to convert into upmarket apartments. It is also redeveloping the former Pentridge jail and surrounding land in Melbourne to residential use, but at the end of last year significantly devalued its investment.

Blackstone is also buying the $900 million US shopping centre portfolio of Centro, but is yet to enter Australia in any meaningful way. It reported a 58 per cent rise in net income to $US568 million ($520 million) for the first quarter of 2011, from $US360 million for the first quarter of 2010.

Fuelling earlier speculation of the Blackstone involvement was the news this week that the US real estate investment trust Kimco announced it had sold its convertible notes in Valad to an affiliate of Blackstone for $US165 million.

Kimco had bought the notes for $US182 million in January 2008 through a $200 million issue by Valad, taken at the time as part of a refinancing exercise.

It is understood the acting chief executive of Valad, Clem Salwin, who last week struck a deal with the former managing director Peter Hurley to leave the company for $2 million, has employed Richard Hunt of Fort Street Advisers to help facilitate the Blackstone deal. Mr Hurley had made an unsuccessful attempt to buy Valad's European business.

Mr Salwin has made it clear since joining the group late last year that his job was to restore investor value, either through a sale of the business or a large-scale reorganisation.

Valad was hit particularly hard during the financial crisis. Its problems were exacerbated when it paid $2 billion to Kevin McCabe's London property funds management company Scarborough in 2007. At the time Valad was trading at a peak of $2.40 but then fell to 5¢. It undertook a 20 for one consolidation last year, taking its price to $1.15, which is still equal to about 6¢ a share.

Simon Wheatley, the head of real estate research at Goldman Sachs, said it was not surprising during the process of attempting to sell various businesses within Valad that a purchaser of a segment of the group may decide it would make financial sense to buy the entire group, which is trading at a 50 per cent discount to net tangible assets.

ccummins@smh.com.au with Reuters