SYDNEY-With a rival bid believed to be on the horizon and its share price headed in the wrong direction, Lend Lease on Wednesday sought to clarify why its bid is worthy and counter what it claims is misleading pricing information in recent market and media discussion.The proposed merger would be achieved through the stapling of Lend Lease shares and GPT units, not through an exchange of GPT units for Lend Lease shares as some have suggested. GPT unitholders and Lend Lease shareholders would hold stapled securities (comprising Trust units and Company shares) based on the ratio of 3.8 existing GPT units to each existing Lend Lease share on issue. GPT unitholders also would receive a special distribution of $0.47 per unit at the time of the merger. As a result, the merged Group would be owned 59.1% by GPT unitholders, 40.9% by Lend Lease shareholders. Lend Lease expects that, given the merged Group would derive 71% of earnings after tax from property asset ownership (provided by GPT), it would trade in the Listed Property Trust Index. “As a result, we believe the market would value stapled securities in the Group in the same way that it values other stapled property securities in that Index,” states Lend Lease. “Such stapled securities are typically valued on the expected distributions capitalized at an appropriate yield.”Based on the pro forma forecast 2005 annualized distribution of $0.255 cents per equivalent GPT unit (assuming the special distribution is reinvested) and GPT’s yield of 7.3% prior to the announcement of the proposed merger, the implied value per equivalent GPT unit is $3.46, which is broadly consistent with GPT’s market price since announcement of the proposed merger. Based on the pro forma forecast 2005 annualized distribution of $0.829 cents per Lend Lease share and using the same yield of 7.3%, the implied value per Lend Lease share is $11.36. Lend Lease also notes that the merged Group may be re-rated to trade at a stronger yield based on the quality of the business mix; the scale and liquidity; and the growth outlook for the combined businesses. At a 7% yield, the implied value of the merger proposal to GPT unitholders is $3.59 per GPT unit and to Lend Lease shareholders is $11.85 per Lend Lease share.”Some commentators have used daily trading prices of Lend Lease shares to arrive at an implied value for GPT unitholders from the proposal,” states Lend Lease. “Such a calculation is likely to be misleading to investors because it assumes that Lend Lease shares will continue to trade separately post merger when they will not.”Using the end-of-May closing prices of $10.15 per Lend Lease share and $3.46 per GPT unit, the trading price based value of the merger proposal for GPT unitholders on that day would be calculated as follows: GPT units ($3.46 – $0.47) x 59.1% = $1.77; + Lend Lease shares ($10.15/3.8 x 40.9%) = $1.09; + special distribution ($0.47 per unit) = $3.33 per GPT unit. This compares with the $3.46-$3.59 value for GPT units, which would be achieved if the stapled securities trade post merger on the distribution yields of 7.3%-7.0%, as Lend Lease suggests.The market is apparently not in agreement with this rationale, as only the share price of GPT has risen — from $3.30 to $3.44 since the proposed merger was announced — while the Lend Lease share price has slumped from $10.75 to $10.20. Meanwhile, there is a widespread market expectation that a rival bidder will appear, most likely Stockland, which reportedly has a lower cost of capital and could make GPT a better offer.

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