Canadian housing firms are focusing on suburban areas in the U.S., where more and far cheaper land is available than in the cities, allowing to build on a bigger scale.STAFF/Reuters
Minority shareholders of Brookfield Residential Properties are starting to speak out against parent Brookfield Asset Management's bid to buy the rest of Brookfield Residential for $23 (U.S.) a share, saying that's not even close to the fair price.
Brookfield Asset said Thursday it would make the bid. Brookfield Residential will now set up a committee of independent directors to review the bid, and hire bankers to offer an opinion.
Jeff Olin, a shareholder at Vision Capital, a Toronto real-estate specialist, has already got one.
"This is way too cheap," he said, accusing Brookfield Asset of trying to "steal" Brookfield Residential. "We think it's worth between $32.50 and $37.50. On a bad day it's $30."
Mr. Olin bases his estimate on the value of the residential property that Brookfield Residential has held for development. The homebuilder has a huge base of land that the company has projected will generate $5.5-billion in cash flow over coming years. (That's on page 20 of this presentation on Brookfield Residential's web site.)
His view is that the stock has always traded cheaply relative to its value, in part because U.S. analysts don't understand the business, which is not akin to homebuilding stocks but is covered in the same way.
So it is minority versus majority shareholders. It's a common storyline – parent company makes offer to minority shareholders, who complain it is not enough.
Securities law gives the minority a fair bit of clout, as Brookfield Asset will have to convince a majority of the minority. That means a few large shareholders can hold out for more. Stephen Jarislowsky made a career of fighting that battle, often successfully.
Mr. Olin says he is already reaching out to other shareholders.
The valuation he'd like may be well above $30, but he is realistic. What is a good outcome?
"Closer to $30," he said.
Editor's note: A previously published version of this article incorrectly indicated that Vision Capital's estimate on the value of Brookfield Residential's property held for development did not include housing the company is now building. In fact, Vision Capital's estimate does include that housing.