May 2007

Countrywide: 'It isn't over until...'

But Apollo have takeover of giant in their sights...

"IT’S not over till the fat lady sings or a judge signs a piece of paper," is how Countrywide chairman Chris Sporborg described the aftermath of the shareholder vote on April 13 which approved the improved takeover deal from Apollo Management LLP, the multi billion dollar U.S. private equity group.

The ‘piece of paper’ evidently referred to the final legal approval of the deal due on May 1.

It might well be all over by the time this column is published as 3i, the previously unsuccessful bidder, and the most likely candidate to try to outbid Apollo, had only a short window of opportunity to make a move. But it was still theoretically possible.

Indeed, when the Countrywide board wrote to shareholders on April 12 recommending the improved Apollo offer, the letter stated explicitly that a “conditional and non-binding proposal” from an unnamed third party had been received, and this fuelled speculation that 3i might return to the fray.

Readers with experience of negotiating property sales might think this was something of a negotiating ploy with Apollo, but the City does not work that way.

The Countrywide board would not be allowed by City regulators to tell shareholders of another possible offer, if there was no such approach in reality.

Likewise, they could not recommend the Apollo bid to shareholders without mentioning the possibility of another offer, if such a possibility existed.

I do not doubt that fear of being outbid by another party was the key reason why Apollo increased its original bid on April 12, on the eve of voting.

This last minute boost to the takeover terms to 617p per share helped secure convincing shareholder support when the vote was taken on April 13.

The 617p per share Apollo offer compared with 590p originally offered in March. The key increase is in the cash element, by 20p per share to 530p per share.

The Rightmove element is unchanged at 0.16487 per Rightmove share held by Countrywide. Its value will vary according to the Rightmove share price.

Rightmove later confirmed that “all aspects” of the commercial agreements with Countrywide will remain even after Countrywide sells off its 21.5 per cent stake as part of the Apollo deal.

A key element of these agreements is that Rightmove lists Countrywide properties on its website until at least March 2009.

The revised offer was approved by 98 per cent of shareholder votes, well above the 75 per cent needed.

However, in terms of numbers of shares, the turnout was only 51 per cent. This suggests some major institutional shareholders sat on the sidelines. awaiting developments.

As the speculation continued, the Countrywide share price climbed to 625p, above the value of the Apollo offer.

Admittedly the Rightmove share element varies in value according to how well Rightmove shares are faring, but the behaviour of Countrywide shares after the April 13 meeting suggested City analysts were expecting a counter bid, or at least that the Apollo deal was not yet done and dusted on April 13.

Meanwhile, Apollo’s $8.5 billion takeover for Realogy in the US was finalised on April 10 without much fuss.

Over there, the scenario is different. The real estate market has problems, real estate agents are no doubt suffering and Apollo’s $30 offer per share must have appeared a good deal for shareholders under the circumstances.

I don’t know Apollo’s reasoning behind buying both Realogy and Countrywide, but it’s bought the former near the bottom of the US housing market cycle and the latter near the top of the UK one. Either way it will need to be a long term investor. Which is good for both Realogy and Countrywide.

Telegraph-ing a bonanza for shareholders

THE Daily Telegraph’s Easter edition listed shares in order of the percentage change in their share prices this year, based on the closing prices of Thursday April 5, the last trading day before the break.

No prizes for guessing which firm was near the top of the Property Sector — it was Countrywide, in sixth place at 601p, up 11.2 per cent.

The top performer was St Modwen, the commercial property developer, with a 21.4 per cent rise, and the other four above Countrywide were also commercial property developers.

Savills made mid table at 678p, a 0.6 per cent fall, while DTZ Holdings, the international property consultants, were bottom with minus 22 per cent, despite a star performance in 2006.

Lending Solutions, the parent company of Your Move and Reeds Rains, were not included but their recent share price of 255p is about eight per cent higher than at the beginning of this year and compares with 212p when first floated on November 17 last year.

Guess which share topped the media sector?

It was Rightmove with a 28 per cent rise and a 506p share price. Media firms owning property websites also made the top half of the league with Daily Mail at 830p, up 15.8 per cent, and Trinity Mirror at 539p, up14.8 per cent.

Brown's buy to let bonus

ONE item in the Budget which escaped notice until some days later was how Gordon Brown’s increase in the upper threshold for National Insurance contributions leaves many middle to high earners paying more tax on earned income than if their income derived from investments.

It puts buy to let investors at an obvious advantage. I wonder if that was the intention by the Chancellor.

I recall a Conservative Chancellor discovered the self-employed paid less National Insurance than employed people and invented the income-related Class 4 NI levy to help even things up.

Perhaps the Chancellor should revive the old levy on unearned income to even the balance between earners and investors, and use the levy proceeds to cut taxes elsewhere in the system.