What: Stockland Corporation Ltd (ASX: SGP) shares jumped 1.8% on Wednesday on news that a foreign company lobbed in a takeover offer for Australand Property Group (ASX: ALZ), beating Stockland's earlier bid.
So What: Stockland raised its own initial offer recently, valuing Australand up from $4.20 a share to $4.35. The new suitor, Frasers Centrepoint Ltd from Singapore, unexpectedly came in with a cash consideration of $4.48. Together with the Australand interim dividend of 12.75 cents per share, that would be about $4.60.
Now What: So Stockland's shares went up by potentially losing the takeover? Yes, the market is indicating that the takeover may be too costly to Stockland and is showing relief. Here are several things to think about this and why Stockland could still be a good way for investors to benefit from the rising property market.
– Better off if bid fails
Both companies do residential and commercial property development, but there may be too much overlap since more earnings come from commercial than residential for the two. Commercial property is not as hot as housing construction presently.
– Stockland still makes money
Before its takeover offer, Stockland bought up Australand stock when another major shareholder sold down its stake. The share release opened the opportunity to establish a 19.9% ownership stake at around $3.78 a share. If it eventually does lose out on the takeover, it still profits from the exercise with over an 18% gain in three months.
– Housing construction keeps on growing
The $2.5 billion for Stockland's takeover may be better used if applied towards beefing up its residential development division. Capitalising on rising housing construction could yield better operating margins and diversify group revenue more. It already has a great amount of housing pre-sales, so its residential construction pipeline is filling up.
If Stockland doesn't want to raise its bid, then perhaps the price is now above where the investment returns pays off handsomely. The idea of "growth at a reasonable price" is practiced by both disciplined investors and well-managed companies.
