GBP 1.5 BN DEAL - Kennedy-Wilson Hldgs Recommended All-Share Merger
Summary
· The KW Board and the Independent Committee of KWE are pleased to announce that they have reached agreement on the terms of a recommended all-share combination transaction of KW and KWE. It is intended that the Merger will be effected by means of a Court-sanctioned scheme of arrangement of KWE under Article 125 of the Jersey Companies Law.
· Under the terms of the Merger, each KWE Scheme Shareholder will be entitled to receive:
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0.667 New KW Shares for each KWE Scheme Share |
· Based on the Closing Price of US$22.50 per KW Share on the Latest Practicable Date and a £ / US$ exchange rate of 1.2779, the terms of the Merger value each KWE Share at approximately 1,174 pence and KWE's entire issued share capital at approximately £1.5 billion.
· The implied value of 1,174 pence per KWE Share represents:
· a premium of approximately 20.0% to the Closing Price of 979 pence per KWE Share on the Latest Practicable Date;
· a premium of approximately 22.4% to the volume weighted average price of 960 pence per KWE Share for the three month period ended on the Latest Practicable Date; and
· a discount of approximately 3.4% to KWE's last reported Adjusted NAV of 1,216 pence per KWE Share as at 31 December 2016.
· Following completion of the Merger, KWE Shareholders would own approximately 36% and existing KW Shareholders would own approximately 64% of the Combined Group.
· To show its commitment to growing shareholder returns, the KW Board intends to increase the first quarterly dividend payable following the Effective Date from US$0.17 per KW Share by approximately 12% to US$0.19 per KW Share (which would equate to US$0.76 on an annualised basis).
· KWE Shareholders will be entitled to receive the next quarterly dividend of 12 pence per KWE Share, which KWE intends to pay to KWE Shareholders on the register of members on 13 May 2017. In addition, KWE Shareholders will also be entitled to receive a Closing Dividend after the Effective Date, as described in Appendix 4 to this Announcement. This Closing Dividend will reflect the principle agreed between KW and KWE that the aggregate dividends payable to KWE Shareholders should be equal to the accrued but unpaid ordinary dividends that would otherwise have been payable in respect of KWE Shares in respect of the period from 1 April 2017 until the Effective Date, with payments from KWE to be reduced, where necessary, by any dividend to which a former KWE Shareholder becomes entitled as a holder of New KW Shares after the Effective Date, but only to the extent of the portion of such dividend which relates to a period prior to the Effective Date. KWE has agreed that, if the Effective Date falls on or after 18 August 2017, it will not pay the quarterly dividend of 12 pence per KWE Share which it would otherwise have intended to pay to KWE Shareholders on the register of members on 18 August 2017, but KWE Shareholders would instead receive this as part of the Closing Dividend, subject to any deduction for a KW dividend received to the extent that it relates to the same period. Further details of the arrangements in respect of dividends are set out in paragraph 3 below and in Appendix 4 to this Announcement.
The Independent Committee of KWE
The Manager, a wholly-owned subsidiary of KW, is the investment manager of KWE. As at the Latest Practicable Date, KW and its wholly-owned subsidiaries held 29,829,730 KWE Shares, representing approximately 23.65% of the existing issued ordinary share capital of KWE.
In view of KW's position as the controller of the investment manager providing the executive function to KWE, and in view of KW's representation on the board of directors of KWE, the Independent Committee of KWE has been formed to assess, and take decisions on behalf of KWE with respect to, the Merger. The Independent Committee of KWE comprises Charlotte Valeur (Chair), Mark McNicholas (Senior Independent Director) and Simon Radford (Non-Executive Director), all of whom are considered by the board of directors of KWE to be free from conflicts of interest. The Independent Committee of KWE has retained Rothschild and J.P. Morgan Cazenove to provide financial advice in relation to the Merger and Sullivan & Cromwell LLP and Appleby to provide legal advice in relation to the Merger.
Background to and reasons for the Merger
· The KW Board believes that the Merger will:
· create a leading real estate investment and asset management platform with increased scale and liquidity, having a combined market capitalisation of approximately US$4.0 billion and an enterprise value of approximately US$8.2 billion. Given this increased scale, the Combined Group will receive greater weighting in key US stock indices, including the Russell 2000 (in which it is expected to be the fourth largest real estate company by market capitalisation) and the Russell 3000, enhancing liquidity in the stock and broadening the potential investor base;
· create a global portfolio of over 400 properties with an enhanced geographic mix and broad diversification across real estate sectors;
· provide flexibility to allocate capital globally across asset classes and geographic markets. KW's approximately 400 employees in the US and approximately 100 employees in Europe provide the knowledge base to continue to make investment decisions that offer attractive risk-adjusted returns on capital. Additionally, the enhanced scale and profile of the Combined Group may result in enhanced access to capital and an expanded set of acquisition and development opportunities;
· establish a company with a strong pro forma capital structure, with pro forma leverage of approximately 51% net debt to enterprise value, access to diverse, global equity and debt capital sources, and approximately US$1.4 billion of pro forma liquidity (as at 31 December 2016) to support growth;
· generate certain synergies resulting from the elimination of duplicative public company costs in relation to KWE as well as KWE's revolving credit facility, potential cost of capital improvements related to the differential between US and European interest rates, and potential additional income arising from the Combined Group's ability to manage capital more efficiently as one group, which is expected to result in expanded capacity for investment to drive growth;
· be accretive to adjusted net income per share immediately following the completion of the Merger(1) and provide the potential to enhance cash flows available to distribute to shareholders; and
· provide continuity of leadership team with a strong track record in delivering attractive risk-adjusted returns on investment. There will be no change to management or systems as a result of the Merger, which should minimise integration risk and disruption to the business, and ensure KW's high performance culture is maintained. Additionally, KW's Board and management will own approximately 13% of the shares in the Combined Group following completion of the Merger, which creates a strong alignment with shareholders.
(1) KW's average ownership of KWE for the full financial year ended 31 December 2016 was approximately 21.1%. Illustratively, had KW held 100% of KWE for the full financial year ended 31 December 2016, the adjusted net income per KW Share for that year would have been US$1.84, reflecting the reclassification of net income previously allocated to non-controlling interests in KWE, an increase in the effective tax rate on income previously attributable to non-controlling interests in KWE and the issue of 64,234,553 KW Shares. No statement in this Announcement is intended as a profit forecast or estimate for any period and no statement in this Announcement should be interpreted to mean that adjusted earnings per share for KW, KWE or the Combined Group, as appropriate, for the current or future financial years would necessarily match or exceed the historical published adjusted net income per share for KW, KWE or the Combined Group, as appropriate.
Recommendations and irrevocable undertakings
· The Independent Committee of KWE, which has been so advised by Rothschild and J.P. Morgan Cazenove as to the financial terms of the Merger, considers the financial terms of the Merger to be fair and reasonable. In providing their advice to the Independent Committee of KWE, Rothschild and J.P. Morgan Cazenove have taken into account the commercial assessments of the Independent Committee of KWE.
· Accordingly, the members of the Independent Committee of KWE intend unanimously to recommend that KWE Shareholders vote in favour of the Scheme at the Scheme Court Meeting and the resolutions relating to the Merger at the KWE General Meeting (or, in the event that the Merger is implemented by way of a Takeover Offer, accept the Offer). Simon Radford, the sole member of the Independent Committee of KWE who holds KWE Shares, has irrevocably undertaken to do so in respect of his own beneficial holding of 12,500 KWE Shares representing, in aggregate, approximately 0.01% of the existing issued ordinary share capital of KWE as at the Latest Practicable Date. Further details of this irrevocable undertaking are set out in Appendix 3 to this Announcement.
· The KW Directors consider the Merger to be in the best interests of KW and the KW Shareholders and intend unanimously to recommend that KW Shareholders vote in favour of the KW Shareholder Resolution at the KW Special Meeting which will be convened in connection with the Merger.
· For the avoidance of doubt, neither the Independent Committee of KWE nor Rothschild nor J.P. Morgan Cazenove express any view as to the advantages or disadvantages of the Merger as far as KW Shareholders are concerned.
Comments
· Commenting on today's announcement, William J. McMorrow, Chairman and Chief Executive Officer of KW said:
"This transaction represents one of the most significant milestones in our 40-year history. The combination will create a leading global real estate investment and asset management platform with enhanced diversification supported by the continuity of leadership with a strong, proven track record. The enterprise will benefit from greater scale and improved liquidity, which will enhance our ability to generate attractive risk-adjusted returns for our shareholders. The merger significantly improves our recurring cash flow profile, and, as such, we are pleased to announce our intention to increase our first quarterly dividend by approximately 12% upon completing the transaction, which demonstrates our confidence in the combination and our long-term prospects."
· Commenting on today's announcement, Charlotte Valeur, Chair of KWE said:
"I and the other members of the Independent Committee of KWE are very pleased to announce that we have reached agreement on the terms of an all-share transaction between KW and KWE which will give KWE Shareholders the opportunity to gain exposure to a diversified asset base."
General
· It is intended that the Merger will be implemented by means of a Court-sanctioned scheme of arrangement under Article 125 of the Jersey Companies Law. However, KW reserves the right to implement the Merger by way of a Takeover Offer, subject to the Panel's consent.
· The Merger is subject to, among other things, the satisfaction or waiver of the Conditions set out in Part A of Appendix 1 to this Announcement. The Merger is also subject to the further terms and conditions set out in Part B of Appendix 1 to this Announcement and to be set out in the Scheme Document.
· The Scheme Document will contain further information about the Merger and the Scheme and notices of the Scheme Court Meeting and KWE General Meeting, and will specify the action to be taken by KWE Scheme Shareholders. It is expected that the Scheme Document will be despatched to KWE Shareholders, together with the Forms of Proxy, by July 2017. For the purposes of paragraph 3(a) of Appendix 7 of the Code, and with the agreement of the Independent Committee of KWE, the Panel has consented to this arrangement.
· It is expected that the US Proxy Statement, containing details of the Merger and notice of the KW Special Meeting, will be posted to KW Shareholders at or around the same time as the Scheme Document is posted to KWE Shareholders, with the KW Special Meeting being held at or around the same time as the KWE Meetings.
· The Scheme is expected to become effective in the third quarter of 2017.
This summary should be read in conjunction with, and is subject to, the full text of this Announcement (including its Appendices). The Merger is subject to, among other things, the satisfaction or waiver of the Conditions set out in Part A of Appendix 1 to this Announcement. The Merger is also subject to the further terms and conditions set out in Part B of Appendix 1 to this Announcement and to be set out in the Scheme Document. Appendix 2 to this Announcement contains the sources and bases of certain information contained in this Announcement. Appendix 3 to this Announcement contains details of the irrevocable undertaking received by KW. Appendix 4 to this Announcement contains details of the dividend entitlements of KWE Shareholders and KW Shareholders. Appendix 5 to this Announcement contains the definitions of certain terms used in this Announcement.