Australian ending to DTZ saga

The "merger" (as the two companies describe the transaction) brings to an end a long drawn-out saga, which has seen another takeover attempt come and go as well as the resignations of key DTZ board members, and all against the backdrop of DTZ's plummeting share price. A pre-pack insolvency has the potential advantage for a management board of bypassing the need for a shareholder vote on the deal. It does this by taking the company into administration and then immediately selling it on - which is precisely what DTZ's administrators, Ernst & Young, have done in this case. French family-owned company Saint Georges Participations, the largest shareholder with a 55 pct stake, could have vetoed a more standard type of takeover deal and certainly would have had little incentive to agree to this transaction, as it has involved DTZ being delisted from the London Stock Exchange with no payback for the shareholders.

Saviours left with nothing
SGP originally stepped in to save DTZ Holdings from collapse in 2008 by investing around GBP 83 mln in the company, which after the acquisitions prior to the credit crunch of retail agents Donaldsons and US real estate investment bankers Rockwood was carrying around GBP 106 mln in debt. The deal will see much of this debt paid off or written off, with SGP still remaining liable for around GBP 15 mln of mezzanine debt. Although SGP had restructured DTZ and was able to see strong results from its Asian operations, it was the group's debt and continuing poor results in the UK and Europe that forced its majority owner to look for a buyer. A shortlist was apparently drawn up, including CBRE and UGL, before DTZ announced in May that it had entered into preliminary discussions with BNP Paribas Real Estate concerning a takeover. Under this deal, SGP was to buy the 45 pct of the company that it did not own and then sell that stake onto BNP Paribas RE. The companies would then be merged and around two years later floated on the Paris Stock Exchange. However, the onset of the EU sovereign debt crisis appeared to give BNP Paribas RE distinctly cold feet over the deal. In July, with little progress being made, UGL mounted a rival bid, which was rebuffed by DTZ. As the negotiations dragged on through the summer, August saw the resignations of DTZ's chief executive Paul Idzik together with finance director and global chief operating officer Bob Rickert - reportedly in protest at the slow progress of the merger. An ultimatum was issued by DTZ's board in September for SGP and BNP to finalise the transaction by October 17th, but a deal had not materialised by this deadline and the takeover was called off. Under London Stock Exchange rules, SGP was prohibited from making another bid for six months.
And then in early November, DTZ, now forced into a distressed sale, made the bombshell announcement that UGL was its preferred bidder and that based on "the valuation of DTZ derived from proposals received to date... and, given the level of debt within DTZ, there is minimal value, if any, that may be attributed to the ordinary shares of DTZ." The share price of the company promptly fell to virtually zero, but the announcement had paved the way for the pre-pack takeover. UGL's managing director and CEO Richard Leupen and new DTZ chief executive John Forrester eventually shook hands on the deal on December 5th.

The pros and cons of a pre-pack
Pre-packs remain controversial (and are currently being looked into by the UK's Office of Fair Trading) not only because investors can be left out-of-pocket, but also because they seem to reward failure, as the company board is generally kept in place under this arrangement. However, they do have the advantage that the brand can survive and the staff of the company can be kept on, without the need for large-scale redundancies. DTZ has more than 4,700 permanent employees in 145 cities in 43 countries, but the deal will mean that the merged company will have 53,000 employees in 240 offices, making it the third largest real estate services company in the world. It also allows UGL, a facility and asset management and engineering firm, to diversify its offer into real estate consultancy. The DTZ employees we spoke to seem genuinely to believe that there will be no large-scale redundancies or branch closures as a result of the merger. An integration process for the two conjoined companies is now underway, which should determine any future rebranding and how the services of DTZ and UGL are to be combined.