Australia's FKP rejects $1.2 bln Lend Lease approach

FKP shares jumped 32 percent to a 5-month closing high of A$5.00, just below the effective offer price.

FKP was vulnerable to a takeover with its shares trading around 25 percent below its asset value as the global credit crisis has battered debt-laden Australian listed property trusts, prompting market talk of consolidation in the sector.

"What that signifies, is that the equity market for certain stocks has been overreacting and very pessimistic. Lend Lease has obviously identified the assets of FKP being worth far more, from where the stock was currently trading," said Justin Blaess, director of property securities for ING Investment Management.

Lend Lease said it had offered the equivalent of A$5.00 a share in cash and shares plus the final FKP distribution of 15.7 cents a share, effectively a 36 percent premium on FKP's close of A$3.80 on Thursday.

But the incomplete A$1.3 billion proposal, which involved half shares and half cash, was pitched just 4 percent above the group's net tangible asset value of A$4.96 a share.

Lend Lease said it was disappointed FKP had rejected its proposal and said it remained open to continuing talks with FKP.

"We want to do this on a friendly basis," Lend Lease spokeswoman Sally Cameron said.

Putting the two groups together would make Lend Lease the top developer of retirement villages and make the combined group number three in apartments. Lend Lease is already the top developer of master-plan urban communities.

FKP Chief Executive Peter Brown said Lend Lease was taking advantage of the beaten down share price.

"We don't believe it anywhere reflects the true value of the company," Brown told Reuters, adding he expected other property groups to eye FKP.

"When you look at the quality of our assets, you'd have to think we would be in play. I think we've got a pretty good bunch of security holders and ultimately we're going to take any opportunity as it comes," Brown said.

"We think we're highly desirable and we'll evaluate any offers that come forward."

Stockland Group (SGP.AX: Quote, Profile, Research), seen as one of the stronger property groups in the current market, is also looking to expand in developing retirement communities.

However, Stockland Managing Director Matthew Quinn recently told investors the group saw no promising takeover opportunities at the moment.

FKP revealed Lend Lease's approach after a query from the Australian Securities Exchange, after FKP shares jumped 7 percent in heavy volume on Thursday.

UBS analyst John Freedman said the fact that FKP's shares did not close above the offer price indicated there was some doubt in the market whether Lend Lease would chase FKP further.

"There's no indication from the announcement that they're looking to go hostile," Freedman said.

Austock Securities analyst Rohan Sundram said he valued FKP just below A$6 a share, based on the value of its land bank, which he said was undervalued on the group's balance sheet.

"I think FKP management would be holding out for an offer around that mark if not higher," Sundram said.

FKP has lined up Macquarie Capital Advisers to advise it.

Lend Lease shares fell to A$9.76, their lowest since February 2004, and closed down 3.1 percent at A$9.79. ($1=A$1.05) (Additional reporting by Denny Thomas; Editing by Ian Geoghegan and Lincoln Feast)