Babcock & Brown Capital has reached an agreement to nix its external management agreement with Babcock & Brown and bring management in-house in exchange for a payment of A$32.5 million (€17.3million, $22 million). The amount will be paid from the firm's existing cash resources.
The firm is the second satellite fund to decide to internalise management since the Australian specialist fund manager announced a strategic review of its business earlier this year. Last month Babcock & Brown Communities, a Babcock & Brown satellite fund that invests in retirement villages, agreed to terminate its management agreement for A$17.5 million as part of a proportional takeover offer from property developer Lend Lease.
Babcock & Brown Capital also will pay Babcock & Brown $12.5 million for the termination of an advisory mandate and $5 million in advisory fees in relation to the sale review process. The payments are subject to a change of control occurring for Babcock & Brown Capital or its portfolio company Eircom before 30 April 2010.
Both management agreement internalisations stem from Babcock & Brown’s ongoing strategic review of its business, which is aimed at refocusing the firm on its core activities of infrastructure, real estate and operating leasing.
Babcock & Brown Capital, an Australian Stock Exchange-listed fund, owns a 57.1 percent stake in Irish telecommunications company Eircom and 100 percent of the Israeli Golden Pages, a directory business – its only two portfolio assets. As of 25 June 2008, Babcock & Brown held 14.5 million shares representing an 8.6 percent power interest in Babcock & Brown Capital, according to a regulatory filing.
Babcock & Brown said that the agreement may result in a change of control of Babcock & Brown Communities or its underlying assets and may involve responses to expressions of interest already received for the same. It will carry out a review process in conjunction with UBS to help the firm evaluate the expressions of interest.
Late last month, British investment fund LIT made a non-binding proposal to acquire Babcock & Brown for a sum to be determined pending the outcome of a due diligence process.
A third Babcock & Brown satellite fund, Babcock & Brown Power, is also undergoing a similar strategic review and has received bids for its portfolio assets.
Babcock & Brown Capital shares ended the day up 3 percent, closing at A$1.74 per share.