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Crunch time for Stafford in Phaunos takeover deal

The secondaries firm is aiming to convince more than half of the timber fund’s shareholders by Saturday – a task likely made easier by the withdrawal of a rival bid last week.

A hard-fought battle for Phaunos Timber Fund is about to take a decisive turn.

Earlier this month, Stafford Capital Partners announced its final, hostile bid for the timber fund, increasing its previous all-cash offer from $0.49 to $0.52 per share, valuing Phaunos at $259.1 million. Stafford had initially confirmed its intention to bid for the entire fund in July. Phaunos’ board urged shareholders on Monday to reject the sweetened offer, stating that the bid continues to undervalue the vehicle.

Stafford said on Tuesday that the deadline for accepting this deal is Saturday. The firm has also amended the acceptance threshold to over 50 percent of shareholders, relaxing conditions from the previous 90 percent minimum.

Stafford partner Stephen Addicott told sister publication Agri Investor that his firm was not surprised by the Phaunos board’s reaction, which he said was consistent with Phaunos’ apparent unwillingness to engage throughout.

How many shareholders accept the firm’s offer will at least partly depend on whether they think Stafford’s bid leaves money on the table, which is what the Phaunos board continues to argue. “There is material upside from the asset realisation process compared to Stafford’s final offer,” chairman Richard Bauléat said on Wednesday morning.

Phaunos is being wound up after shareholders decided against continuing it in June 2017, when Stafford was still the fund’s manager. A formal realization process was initiated in August that year, with initial expressions of interest received at the end of June 2018. Boléat said Wednesday that the process has now entered “a new phase,” where bidders are performing due diligence, including site visits. The board hopes to receive binding offers during Q4 2018.

At $0.54-$0.60, the board’s realisation range represents a 3.8 percent to 15.4 percent upside to Stafford’s final offer. It is based on indicative bids for the assets expected to result in the sale of 92 percent of portfolio within six to nine months, according to Phaunos, which also said that negotiations on the possible disposal of its interest in Aurora Forestal – an asset not covered by the process – “are progressing well.”

Phaunos added that an all-stock acquisition bid tabled earlier this month by CatchMark Timber Trust, a US timberland real estate investment trust, at $0.57 per share “validates” its asset realisation range.

That offer, however, was withdrawn last Friday.

Stafford intends to fund this transaction using its SIT VIII secondaries fund, which closed on $612 million in May. Addicott argued that the board was not being fair in comparing a realisation range based on indicative, non-binding expressions of interest with a formal, binding offer that is already fully funded.

There also remains legal uncertainty over a dispute with Rayonier – the majority shareholder in Matariki Forestry Group, an asset accounting for 74 percent of Phaunos’s portfolio – after the timber REIT filed proceedings against Phaunos over an alleged breach of confidence in August.

Phaunos has said it will soon file a defence claim, but Stafford believes Rayonier’s claims raise “serious concerns about the ability of the Phaunos board to deliver the realisation process.”

The promise of a fast exit is central to Stafford’s attempt to convince Phaunos’ investors. It assumes a timetable of three to four months to completion of the firm’s offer, compared to 14-20 months for the official sales process. In July, the firm estimated potential gains at 3-4 cents a share.