What does Dexus’s takeover bid mean for the property sector?

The takeover of Commonwealth Property Office Fund (ASX: CPA) by Dexus Property Group (ASX: DXS) has finally gotten approval after the offer was increased from $2.7 billion to about $2.84 billion.

The deal was lodged through a joint venture between Dexus and the Canadian Pension Plan Investment Board (CPPIB), and when completed, it will increase Dexus’ total office assets under management to $11.5 billion from $7.8 billion.

Commonwealth Property Office Fund currently has a market capitalisation of $2.82 billion. The bid was based on the net tangible assets of the fund plus a small premium. Dexus’s market capitalisation is $4.92 billion, so the potential combined value would be $7.74 billion.

This could possibly move it above GPT Group (ASX: GPT) and Mirvac Group (ASX: MGR), and place it just below Goodman Group (ASX: GMG) and Westfield Retail Trust (ASX: WRT).

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Currently, Dexus has an return on equity (ROE) of 9.86%, which is the third highest amongst the others in the list, yet has the lowest price-to-earnings ratio of them all.

On Tuesday, 12 November, Dexus announced that should the takeover go through, it intends to sell some of the assets that are currently under Commonwealth Property Office Fund’s management. This is to rebalance its net tangible assets, which will slightly drop by 1.7% because of the higher bid.

It has identified several office towers that it would consider non-core assets that may be sold, which currently are valued at about $500 million.

Foolish takeaway

When investors research their favourite stocks, this kind of news is also a must, because when takeovers or mergers change the pecking order in an market sector, other things like PE ratios can change, thereby affecting share price.

Also, this takeover could be but the first of several, so smart investors will be looking over the list to see what company becomes more attractive, and may become the next target.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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