TTP takeover offer too low for the critics

The independent valuation for takeover target Trans Tasman Properties is too low because the valuers have used the wrong measure, critics say.

An independent assessment by Ferrier Hodgson of the SEA Holdings NZ takeover bid released yesterday valued Trans Tasman shares at between 51c and 59c each.

Hong Kong-based majority stakeholder SEA Holdings, which already owns 52.69 per cent of Trans Tasman, earlier this week increased its offer by 4c a share to 55c, the midpoint of the valuation.

Ferrier Hodgson said it assessed the shares using an "aggregation method" based on the current market value for each property asset.

Valuations assessed the profit available under various development scenarios discounted back to net present value after making allowances for risk.

"As such, these valuations do not necessarily reflect the full development margins that the company may earn some time in the future if it is successful in developing its portfolio of properties," the report said.

Independent director John Ferner said it would take some time for investors to digest the report.

"It differs from some of the uninformed views on how we value a company like Trans Tasman," Ferner said.

He had been assured by two experts that the method of valuation was appropriate.

"Although a project may have the potential for a high value it may also turn out that it doesn't work at all. That's always on the cards," he said. "This is a risk business."

The independent directors of Trans Tasman - who have recommended shareholders accept the bid - said they did not consider it likely that the SEA offer would be increased.

However, they said that given SEA Holdings had stated its intention to privatise Trans Tasman, the possibility of SEA Holdings further increasing the offer price could not be be ruled out.

There was little chance of SEA Holdings selling its stake in the company, making the prospect of a competing bid remote, they said.

Critics of the valuation say Ferrier Hodgson should have valued the company by net tangible assets - tangible assets minus liabilities.

The ratio of share price to net tangible asset is often considered a key valuation measure for listed property companies, but Ferrier Hodgson said it was not appropriate in this case.

Trans Tasman reported its net tangible asset as being 67.9c a share for the year to December. But following the SEA Holdings takeover bid, the property portfolio was revalued and the current net tangible asset was revised down to about 63c a share.

Trans Tasman is one of only two listed property development companies. The other, CDL Investments NZ, also traded at a significant discount to net tangible asset

"Consequently, it is not feasible to apply a price-to-net tangible asset approach to value Trans Tasman," the report said.

Shareholders Association chairman Bruce Sheppard did not agree.

"What other ratio is relevant?" Sheppard asked. "Why don't we just liquidate the company and give everyone their money back?"

Asked if the 55c offer would succeed, Sheppard said he'd take the money and run "although it's still under value, frankly".

Shareholder Peter Rae said last month that any serious bid should be nearer to a net asset value he estimated at greater than 70c. Rae said on initial reading the offer still appeared low.

"I'd be inclined to stay in for the ride rather than accept 55c," he said.

Rae said he was happy with the overall methodology but was concerned about the high ratio of overhead costs they were deducting from the asset valuation.