Private Equity Doesn't Always Hold the Key
(Bloomberg Gadfly) -- It could be Asia's biggest buyout deal, and private equity is crying foul about not being allowed in. Maybe the takeover artists should get real: Global Logistic Properties Ltd.'s $41 billion warehouse portfolio needs a different key than theirs to unlock value.
Potential buyers including Warburg Pincus LLC, Blackstone Group LP and RRJ Capital have been pressing for months to get detailed financial information on GLP, as the company is called, according to a Bloomberg News report Tuesday. Some bidders had told GLP that documents they needed were trickling in too slowly and important details were blacked out. The deadline for offers is June 30.
Things have gotten so bad that Singapore's sovereign wealth fund, which asked the board to initiate the sale process late last year, has had to call for a meeting of the working team managing the transaction and instruct it to share information more transparently, Joyce Koh and Jonathan Browning reported.
GIC Pte owns 37 percent of GLP. It has every right to demand the best-possible price to exit its inspired bet on Chinese logistics, made before the explosive growth of online retail.
It was GIC's backing that allowed Chief Executive Ming Mei and his team to fashion GLP out of Japanese and Chinese warehouses they acquired from their then employer Prologis Inc., which was forced to sell the assets at knock-down prices after the 2008 financial crisis. Mei has since gone on to create a $39 billion funds-management business. GLP owns anywhere between 8 percent and 56 percent in these funds, but this strategy hasn't rewarded investors. The company's enterprise value, after a 60 percent surge in the stock since the start of buyout-related speculation, is less than $19 billion.
Private equity firms, flush with cash, feel the No. 1 logistics real estate player in China, Japan and Brazil could do with some honest-to-goodness financial engineering. Souping up its ho-hum 9 percent return on equity by adding leverage should be an obvious strategy. Longer term, what needs to be publicly held is not GLP itself, but perhaps the funds into which the warehouses are eventually injected.
The trouble is, Mei has the ability to take GLP to the next level in China, the world's largest e-commerce market. His management-buyout bid is backed by well-connected Chinese private equity firms like Hillhouse Capital Management Ltd. and Hopu Investment Management Co. A group including JD.com Inc., Ping An Insurance Group Co. and the country's largest developer, China Vanke Co., are also close to stitching up funding.
While none of the potential private equity bidders, and especially Blackstone, which sold GLP a large U.S. asset a few years ago, are exactly strangers to the world of logistics, Mei does have an operational advantage. The lack of information other bidders are complaining about could be a genuine reluctance to share competitive information on key tenants and limited-partner investors in funds.
But since he seems to want the key to the locker the most, is he willing to pay? It will be embarrassing for GIC to end up with that niggling feeling that Mei got his widget back on the cheap by making rivals run away. At GLP's current share price of S$2.87 ($2.07), which has the potential sale baked in, minority investors are getting an unappetizing 5 percent annualized return in Singapore dollar terms since the firm went public seven years ago.
Mei & Co. could be a good thing for GLP, but not if lackluster bidding interest emboldens them to scrimp on the premium.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.
To be sure, Warburg Pincus could be aiming at more than financial engineering. It has its own logistics business in China, though E-Shang Redwood Ltd., which is bidding together with Warburg, has only 2 million square meters of warehousing capacity in the country, compared with GLP's 17.5 million square meters.