Macquarie's options wane

Australian-based global property and infrastructure giant Macquarie looks likely to lose its bid for control of Grayprop, SA's second-biggest listed property fund, and with it a dramatic entry into the SA property market.

Does that mean Macquarie will now want to buy into its rival for Grayprop, listed property asset manager Madison?

Shares in Madison leapt late last week as word got out that Standard Bank Properties (Stanprop) was about to exercise its pre-emptive right to buy Grayprop's management company.

That almost certainly means that Madison will end up with it.

Grayprop is a property unit trust and is effectively controlled by its manco. Stanprop is a shareholder in Grayprop's manco, for which Macquarie had outbid the competition for a rumoured price:earnings ratio of 18, or a yield of 5,5%.

Madison executive director Marc Wainer launched the bid to buy Grayprop's management company from Allan Gray in January. Stanprop CEO Stewart Shaw-Taylor was one of Madison's founding shareholders, and Stanprop is the main financier of its property funds Hyprop, ApexHi and Redefine. The latter are the JSE's next-biggest funds after Grayprop and Growthpoint, so there is every reason for Madison to win.

If it takes over the manco, Madison will probably arrange a merger between Grayprop and Hyprop, creating SA's second-biggest property fund, with a market capitalisation of about R13bn - Growthpoint is at R16bn - making it more attractive to global investors. For technical reasons, Grayprop will take over Hyprop.

Buying Grayprop's manco at 5,5% will dilute returns to Madison's shareholders, with its price of 895c giving a forward yield of about 7%, and Shaw-Taylor will want some of the manco for delivering Grayprop. Madison can overcome that by getting Hyprop to contribute to the cost of the manco.

Mac quarie has few options left to become a major player in SA property.

If Macquarie's main interest is in asset management, Madison would be the obvious next step.

Macquarie could make itself attractive to Wainer and partner Wolf Cesman by offering them expertise in international markets for future expansion. And they could eventually provide a great exit for Cesman and Wainer from their large holdings in Madison.

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