Charter Hall Group to acquire Folkestone Limited

From

David Harrison

Charter Hall Group (ASX:CHC) (Charter Hall) and Folkestone Limited (ASX:FLK) (Folkestone) are pleased to announce that they have entered into a scheme implementation agreement for Charter Hall to acquire Folkestone (Scheme) for consideration of $205 million funded by cash from available investment capacity.

Under the terms of the Scheme, Folkestone shareholders will be entitled to receive $1.39 cash per share (Scheme Consideration), comprising a Charter Hall cash consideration of $1.354 per share[1] and a special dividend of $0.036 per share[2] (Special Dividend). In addition, Folkestone shareholders on the register as at 11 September 2018 will be entitled to a $0.03 per share ordinary dividend for FY18, payable on 27 September 2018 (FY18 Dividend). The FY18 Dividend will be paid to Folkestone shareholders regardless of whether the Scheme is approved.

Folkestone is a property fund manager and developer with listed, unlisted and private funds, with a strategy similar to Charter Hall of accessing, deploying and managing property for its stable of property funds to deliver above benchmark returns for its fund investors and securityholders.

The transaction will grow Charter Hall’s funds under management (FUM) by $1.6 billion, delivering fund management and development investment earnings, driving earnings accretion for the Group.

The acquisition of Folkestone expands Charter Hall’s investable universe into the social infrastructure and early learning sector. Early learning is a growth sector underpinned by population growth, increasing workforce participation and government funding. The early learning sector is still highly fragmented with low institutional participation, but with high quality covenants and long WALE triple net leases.

Charter Hall’s Managing Director and Group CEO, David Harrison said: “We see the Folkestone business model as consistent with our existing strategy. We are attracted to their leading position in the social infrastructure sector and the suite of listed and unlisted funds adds to our diversity of sources of equity, whilst their origination capability is expected to generate property investments for the expanded list of managed funds.

“Importantly, the Folkestone culture shares many similarities to Charter Hall’s own culture and we see the two organisations as a close fit. We look forward to Folkestone executives joining Charter Hall and the complementary skills they will bring as we work together to grow the funds management platform.”

Folkestone Managing Director, Greg Paramor AO, commented “We see this as an excellent fit of two likeminded businesses. Folkestone brings significant expertise and skills in the fields of social infrastructure and early learning. Folkestone’s other existing unlisted funds also complement Charter Hall’s existing platform, providing opportunities for Charter Hall to either grow these funds, or create new fund initiatives leveraging Folkestone’s extensive private client network and Charter Hall’s extensive distribution network.”

Chair of Charter Hall, David Clarke, commented: “Should the Scheme be successfully implemented, it is the intention of the Board to invite Greg Paramor to become a Non-Executive Independent Director of Charter Hall Group. Greg is an experienced Director who is held in high esteem given his significant experience in the property sector and corporate life more broadly. We believe Greg’s experience and skill set and his broad-ranging property experience will be a valuable addition to the Charter Hall Group Board.”

The Scheme Implementation Agreement and Scheme are subject to the usual conditions precedent including:

  • All necessary regulatory and court approvals;
  • Independent Expert’s opinion;
  • Folkestone shareholder approval by the requisite majorities (being a majority in number of shareholders who vote and at least 75% of the total number of shares voted); and
  • Other customary conditions

Folkestone’s Board of Directors unanimously recommends that Folkestone shareholders vote in favour of the Scheme, in the absence of any superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Folkestone shareholders.

The proposed Scheme Consideration of $1.39, represents a 25% premium to the previous close of $1.11.

Based on the FY18 FLK reported EBITDA of $20.05 million, the Charter Hall cash consideration of $205 million represents an approximate 10.2x EBITDA multiple.

Consistent with their recommendation, each member of the Folkestone Board intends to vote the Folkestone shares in his control in favour of the Scheme in the absence of a superior proposal and subject to the Independent Expert concluding that the Scheme is in the best interests of Folkestone shareholders.

The obligations of Charter Hall and Folkestone regarding the implementation of the Scheme, the Scheme conditions and deal protections are set out in the Scheme Implementation Agreement.

Folkestone shareholders do not need to take any action at the present time. A Scheme Booklet containing information relating to the Scheme, an independent expert’s report on whether the Scheme is in the best interests of Folkestone shareholders, the reasons for the Board’s recommendation in favour of the Scheme, and details of the Scheme meeting is expected to be sent to Folkestone shareholders shortly.

The timetable is as follows:

  • Process Date First court hearing to approve scheme booklet dispatch to Folkestone shareholders: Mid September 2018
  • Dispatch scheme booklet to Folkestone shareholders: Mid September 2018
  • Scheme meeting for Folkestone shareholders: Mid October 2018
  • Second court hearing to approve scheme meeting for Folkestone shareholders: Mid/late October 2018
  • Transaction completion (if approved): Early November 2018

Further details about the Scheme can also be found in the Charter Hall FY18 Full Year Results Presentation and the Folkestone FY18 Full Year Results Presentation, both of which have been released on the ASX.

1 As at the date of this announcement, Folkestone has 148,099,564 shares on issue and 3,268,128 unvested performance rights. In accordance with the terms of the Folkestone Executive Incentive Plan these performance rights will vest and as a result will receive the Scheme Consideration. 2 Folkestone is applying to the ATO for a class ruling in relation to the tax implications of the Scheme, including the availability of franking credits for the Special Dividend

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