GPT, Lend Lease Negotiations Fail

SYDNEY-GPT’s internalization proposal is becoming more publicly contentious. The Sydney-based property trust said Tuesday morning that negotiations have failed between it and Lend Lease regarding its proposed transition to an internally managed organization, which if approved by unitholders would entail hiring away Lend Lease employees currently assigned to the trust. Lend Lease agrees that negotiations have failed, but the two sides differ on why.GPT says negotiations broke down after Lend Lease “demanded” that GPT refrain from presenting to employees then proceeded to make its own offers of employment to key personnel involved with GPT. In addition, on May 6, the same day Lend Lease informed GPT of its actions, GPT claims Lend Lease also gave it three days to split GPT’s retail team or negotiations would be called off and Lend Lease would take steps to remove GPT head Nic Lyons and the rest of the senior management team from the “day to day” management structure of GPT and insert Ross Taylor, a Lend Lease executive director, into this role.”The full board of GPT Management Limited, as responsible entity of GPT, has unanimously rejected this attempt to interfere with its management structure and Nic Lyons remains in charge of GPT’s affairs reporting to the GPTML board,” according to a statement released by GPT’s board of directors. GPT did not stop there. The company proceeded to hold its own presentation for employees over the weekend of May 7-8 and says 23 key retail employees, spanning retail development, property management and leasing, and the four key portfolio managers, have already indicated formally that, in the event of the internalization proposal succeeding, they will join GPT. Furthermore, GPT says it now considers Lend Lease to have terminated the negotiations and accordingly “GPT has formally withdrawn its offer of a payment of up to $45 million dollars to Lend Lease as well as the offer of preferred supplier arrangements for Bovis Lend Lease.”Lend Lease says the failure of negotiations related to GPT’s “proposed but widely criticised” internalization package in fact arose for two reasons. First, Lend Lease says GPT insisted that Lend Lease not attempt to influence the GPT unitholders to vote against internalization and instead endorse the proposal as a condition for agreeing to the proposed transition and commercial agreements, which includes the $45 million payment and the preferred supplier arrangements.Secondly, Lend Lease says that despite weeks of discussions the GPT internalization group would not agree to “a fair and equitable arrangement for an initial allocation of Lend Lease resources and employees that provided certainty for all Lend Lease employees, not just those the GPT group may have decided to employ if their proposal is supported (all persons currently servicing the Trust are employees of the Lend Lease Group). A rational, fair and equitable agreement on this matter was a key principle for Lend Lease.”With regard to Nic Lyons, Lend Lease says Lyons threatened the company with his immediate resignation and that of the entire senior trust management team if GPT was not given “unfettered access” to make approaches to Lend Lease employees. “Lend Lease offered to accept these resignations, but they were withdrawn,” say Lend Lease officials in a formal statement.As for the overall internalization proposal, Lend Lease says the proposal is against the interests of GPT unitholders and “should be rejected outright.” Lend Lease says its primary reasoning for this opinion is that GPT has “tied” to the proposal the sale of interests in three of GPT key retail portfolio assets to Westfield and the establishment of a highly geared Joint Venture with Babcock & Brown.Lend Lease managing director and CEO Greg Clarke says Lend Lease will announce its views on an appropriate internalization model for GPT tomorrow. He says that this alternative model will avoid the sale of GPT’s retail assets to Westfield and the Babcock & Brown JV, and “will not include making a takeover offer for GPT as an alternative to the current internalisation proposal.”GPT proposed the internalization of its management in February as part of a plan to counter attempts by Lend Lease and Stockland Group to win GPT unit holders’ approval to acquire their company. As part of the plan, GPT agreed to sell interest in three GPT centers for A$842.4 million and use the proceeds to grow itself through a $1-billion international property and investment and development joint venture with Babcock & Brown Ltd, Australia’s second-biggest publicly traded investment bank.