Cromwell alleges conflicts of interest in ARA takeover bid

21 August 2020, Written by Business News Australia

Cromwell alleges conflicts of interest in ARA takeover bid

Cromwell Property Group (ASX: CMW) is ramping up the rhetoric in its bid to derail a proportional offer from Gary Weiss-backed ARA Group to take an influential albeit not majority holding in the $2.3 billion Brisbane-based company.

Cromwell has previously described the bid as an opportunistic takeover by stealth and is trying to establish an alleged connection between ARA and Chinese billionaire Gordon Tang.

If the latter were true an upped stake for Singapore-based company ARA could be problematic as Cromwell holds or has investments in strategic properties that host the likes of the Australian Defence Force (ADF) and the Therapeutic Goods Administration (TGA).

Yesterday Cromwell took aim at ARA's nominees, renowned corporate raider Dr Gary Weiss (pictured) and Joseph Gersh, who the suitor will have up for election to the board at an extraordinary general meeting on 18 September.

Cromwell claims ARA's interests as a competitor may not align with the interests of Cromwell shareholders, noting that both nominees are either associated with ARA or its advisors.

"Cromwell believes that ARA's nominees may have been nominated for the principal purpose of representing ARA's interests, which may not be in the best interests of all Cromwell securityholders," Cromwell said yesterday.

"Having non-independent ARA nominee directors on the Cromwell Board, while ARA's proportional takeover offer is on foot, may give rise to potentially material conflicts of interest that the Board will need to manage if ARA is successful with its third attempt to push for their nominees to be elected to Cromwell's Board."

The company highlighted Weiss' past failures to secure a position on the Cromwell board, and made the additional assertion he had too much on his plate with other directorships.

"As was the case two times before, Gary Weiss is conflicted through his directorship of The Straits Trading Company Limited, a major shareholder of ARA," Cromwell said.

"Even if he resigned from this board, he would continue to be considered non-independent due to his association with ARA.

"In addition, Gary Weiss continues as a director on the boards of a total of six publicly listed companies, including two as Chair (Ardent Leisure Group Limited owner and operator of Dreamworld theme park; and Estia Health Limited aged care operator)."

Cromwell explained many of these businesses had been severely impacted by the COVID-19 pandemic and other matters, which would require increased attention and time from Weiss.

"The Cromwell Board retains the firm view that Gary Weiss is overboarded and would not be able to devote sufficient time and attention required to Cromwell," the company said.

"Additionally, and importantly, due to the nature of his association with ARA, the Cromwell Board has a good basis to believe that Gary Weiss is working with ARA in its hostile campaign, which will be destabilising and result in a fractured Board."

Crowell also emphasised Gersh's association as a former senior partner of Arnold Bloch Leibler, ARA's legal advisors.

The group reiterated the experience and commitment of its current board, including the appointment of two new independent directors with previous ASX and LSE-listed company directorships and extensive skills and expertise in a wide range of areas.

ARA hits back at claims

ARA has today parried Cromwell's disparaging remarks with a scathing criticism of the group's management, as well as a defence of the credentials of Weiss and Gersh, both experienced businessmen who are members of the Order of Australia. 

The investor has argued Crowell's 40 per cent gearing estimate is flawed and over-optimistic given its large balance sheet exposure to Polish assets that are under pressure.

"Cromwell is in urgent need of improved governance and oversight," an ARA spokesperson said in a statement given to Business News Australia

"The current Board has recklessly taken underlying gearing to levels above their own target of 40 per cent by a series of missteps, including the recently acquired $1 billion portfolio of Polish shopping centres."

In an update on 3 August, Cromwell reported sales turnover at the assets in the Cromwell Polish Retail Fund (CPRF) had returned to their pre-pandemic levels, although this only took into account stores that were obliged to report and did not include supermarket giant Auchan.

In that report, Cromwell's chief investment officer Rob Percy said the Polish assets' resilience was reflected in the independent, third party valuations which saw a small reduction of 5.3 per cent in the value of the portfolio as at 30 June 2020.

The ARA spokesperson added Cromwell's earnings and distributions had been in decline for the last three years, and questioned the group's choice of partner in Stratus Data Centres for intended investments into data centres in Europe and Asia.

In terms of ARA's intentions with Cromwell, the suitor's spokesperson emphasised the company had invested more than $750m in Cromwell and was "resolute in protecting its investment".

"ARA is seeking proportionate representation in accordance with its ownership in order to improve the governance and operations of Cromwell for the benefit of all securityholders," the ARA spokesperson said.

"ARA has recently launched a proportional offer to acquire 29 per cent of the shares of Cromwell that it does not own, in order to ensure its concerns are considered in a bona fide manner by the incumbent board - to date this has not been the case.

"The maximum shareholding ARA could achieve under the offer is 48 per cent, assuming all parties accepted the offer."

The Singapore-based company also disputes Cromwell's "takeover by stealth" allegation.

"The facts are that ARA is only seeking representation on the Board commensurate with its position as a 26.7 per cent security holder. That is, two seats in what would be a Board of eight individuals.

"ARA cannot understand why Cromwell continues to resist the largest shareholder having Board representation.

"All securityholders should be concerned about why this is the case. What is it that the company is seeking to hide? Situations like Stratus Data Centres are cause for great concern."

The investor said it had made efforts to work collaboratively, but Cromwell had discriminated against it, including through exclusion from the June 2019 placement and other actions that showed a "clear intention to subvert securityholder rights and ignore the principle of fair and equal treatment for all securityholders".

"The ongoing instability and turmoil caused by Cromwell's behaviour towards ARA has not benefited anyone and demonstrates a clear lack of leadership," the spokersperson said.

"Dr Weiss and Mr Gersh are both eminent Australians with distinguished track records at the highest levels of business, policy and philanthropy. Any Board, but in particular the Cromwell Board would benefit enormously from their respective experience and contributions.

"Dr Weiss is one of the most experienced directors in Australia and, in addition to his extensive governance experience both in Australia and internationally, will also bring a proprietorial focus to the Cromwell Board.

The spokesperson also noted Gersh was an acknowledged expert in both real estate and corporate governance, and was completely independent of, and has had no affiliation with ARA.

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