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Kennedy Wilson Europe to merge with Kennedy Wilson Holdings

The Kennedy Wilson Holdings Board (KW) and the Independent Committee of Kennedy Wilson Europe (KWE) are pleased to announce that they have reached agreement on the terms of a recommended all-share merger.  Eeach KWE Scheme Shareholder will be entitled to receive: 0.667 New KW shares for each KWE share. Based on the closing price of US$22.50 per KW share and a GBP / US$ exchange rate of 1.2779, the terms of the merger value each KWE Share at approximately 1,174 pence and KWE’s entire issued share capital at approximately GBP1.5 billion.

The implied value of 1,174 pence per KWE share represents:

  • a premium of approximately 20.0% to the closing price of 979 pence per KWE Share;
  • a premium of approximately 22.4% to the volume weighted average price of 960 pence per KWE share for the last three months; and
  • a discount of approximately 3.4% to KWE’s last reported Adjusted NAV of 1,216 pence per KWE Share as at 31 December 2016.

Following completion of the Merger, KWE Shareholders would own approximately 36% and existing KW Shareholders would own approximately 64% of the Combined Group.

To show its commitment to growing shareholder returns, the KW Board intends to increase the first quarterly dividend payable after the deal goes through from US$0.17 to US$0.19 (US$0.76 on an annualised basis). KWE shareholders will be entitled to receive the next quarterly dividend of 12 pence per KWE share, which KWE intends to pay to KWE shareholders on the register of members on 13 May 2017.  In addition, KWE shareholders will also be entitled to receive a closing dividend equal to the amount the would have got as KWE shareholders between April 2017 and the date the deal goes through.

The KW Board believes that the Merger will:

  • create a leading real estate investment and asset management platform with increased scale and liquidity, having a combined market capitalisation of approximately US$4.0 billion and an enterprise value of approximately US$8.2 billion.  Given this increased scale, the Combined Group will receive greater weighting in key US stock indices, including the Russell 2000 (in which it is expected to be the fourth largest real estate company by market capitalisation) and the Russell 3000, enhancing liquidity in the stock and broadening the potential investor base;
  • create a global portfolio of over 400 properties with an enhanced geographic mix and broad diversification across real estate sectors;
  • provide flexibility to allocate capital globally across asset classes and geographic markets.  KW’s approximately 400 employees in the US and approximately 100 employees in Europe provide the knowledge base to continue to make investment decisions that offer attractive risk-adjusted returns on capital.   Additionally, the enhanced scale and profile of the Combined Group may result in enhanced access to capital and an expanded set of acquisition and development opportunities;
  • establish a company with a strong pro forma capital structure, with pro forma leverage of approximately 51% net debt to enterprise value, access to diverse, global equity and debt capital sources, and approximately US$1.4 billion of pro forma liquidity (as at 31 December 2016) to support growth;
  • generate certain synergies resulting from the elimination of duplicative public company costs in relation to KWE as well as KWE’s revolving credit facility, potential cost of capital improvements related to the differential between US and European interest rates, and potential additional income arising from the Combined Group’s ability to manage capital more efficiently as one group, which is expected to result in expanded capacity for investment to drive growth;
  • be accretive to adjusted net income per share immediately following the completion of the Merger(1) and provide the potential to enhance cash flows available to distribute to shareholders; and
  • provide continuity of leadership team with a strong track record in delivering attractive risk-adjusted returns on investment.  There will be no change to management or systems as a result of the Merger, which should minimise integration risk and disruption to the business, and ensure KW’s high performance culture is maintained. Additionally, KW’s Board and management will own approximately 13% of the shares in the Combined Group following completion of the Merger, which creates a strong alignment with shareholders.

The Scheme is expected to become effective in the third quarter of 2017.

KWE : Kennedy Wilson Europe to merge with Kennedy Wilson Holdings

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