It’s been revealed in an LEG release and presentation published this morning that the company has agreed to purchase 24.1% of minority shares in BCP from minority shareholders led by Brosh Capital Partners. Simultaneously, the company has purchased 6.8% of shares in BCP from Adler Group (~10% of Adler’s ~70% stake) and entered into a call option for Adler’s remaining stake (63% of BCP) at a strike price of €157 per share with a 30 September 2022 maturity. Adler has entered into an irrevocable undertaking to tender its remaining shares in BCP upon a public offer by BCP and is thereby obliged to not otherwise dispose of the relevant shares. 

LEG has paid €328m to acquire the combined 30.9% stake in BCP, with €75m of this for Adler’s 6.8% stake while LEG has also paid €7.5m to Adler as part of the call option and tender commitment agreement struck. Should LEG exercise its call option on the remaining Adler stake, it would result in gross cash proceeds for Adler of €765m, resulting in total cash proceeds from the sale of Brack of ~€850m. Combined with the €800m of net cash proceeds raised from the portfolio disposal, the two transactions could raise as much as €1.65bn of net cash proceeds for Adler, “thereby providing significant liquidity to the group and materially reducing leverage”. 

Specifics on portfolio disposal

For those interested, LEG has published a presentation this morning providing plenty of insight into the rationale for the portfolio acquisition and details on the assets within the portfolio. Of note, the purchase price agreed is €1.291bn,while the company notes €88m of other costs. This corresponds to a valuation of €1.4bn for the portfolio previously cited by Adler but the €88m of other costs is something of an unknown. Per Adler, €379m of secured/project debt will be repaid with the disposals, meaning net cash proceeds before the payment of fees and taxes would be €912m based on the purchase price of €1.291bn. LEG is buying 100% of the shares in the related entities, meaning Adler would likely be liable to pay a real estate transfer tax (RETT) on the transaction. Incidentally, Adler notes the disposal will “result in a reduction of the receivables from RETT blockers by EUR 65m”. 

Brack disposal

Adler completed the acquisition of its ~70% stake in BCP in April 2018 for a total consideration of ~€550m (NIS 2.4bn). This comprised a 44% stake purchased from Redzone Empire Holding for ~€280m in February 2018 and the purchase of free float shares from a tender offer launched in April the same year. Per the Viceroy short-seller report, Redzone Empire Holding was controlled by Israeli billionaire entrepreneur, Teddy Sagi, who purchased the 44% stake from Brack founders in May 2017 following a disagreement with the company. 

On the face of it, then, it looks like the deal struck with LEG could result in a decent return on investment for Adler should LEG exercise its call option. One point to note here: LEG claims the purchase of the 30.9% stake in BCP for €328m corresponds to a 4% discount on NAV as of 30-Sep-21, while the option strike price of €157 per Adler share is not less than the EPRA NAV as of Q3 2021. 

Adler Group shares are up ~22% today to 10.52, almost regaining all the losses from the past week. 

Adler management will host an investor call on Thursday, 2 December, at 15.00 CET (2pm UKT) to discuss the transactions. It will be interesting to see if time is allocated for a Q&A session during this call.