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24 November 2004
Lend Lease 2004 Annual General Meeting & Scheme Meeting - Summary of discussion on resolutions and Questions & Answers
Agenda Item 1 – General Q&A Session
Shareholder # 1: In the Annual Report it lists the present directors on page 27 and it shows the very last one, Mr R. A. Longes, Deputy Chairman, non-executive. Now he was appointed in 1986. That's 18 years that he has been a director, but in the Independent category, it says "No". I want to know why that particular qualification has been put there, and if it is a special qualification? Why is Mr Longes still on the Board of Directors? I don't understand how Mr Longes can keep on as a director for 18 years. Is he going to go for another 18 years?
David Crawford: Mr Longes has been on the Board for 18 years. You will recall that when the Company was going through its difficulties in the US REI investments business and we were in the process of trying to exit that business and we were also in the process of trying to find a new CEO, Mr Longes, who had indicated a willingness at that time to step down from the Board, was asked specifically by me if he would stay on at that time. He undertook to do so, probably against his personal preferences, but I felt – and the Board felt - that with a new management team being instituted and a relatively new Board, because nobody other than Mr Longes, who's up here today as a director, has been on this Board since before the year 2000, that we did need his knowledge and experience in the industries in which the Company operates.
Mr Longes has agreed to serve, because we've asked him to do so. He's certainly not looking to be here for another 18 years. I think I can say quite confidently he doesn't plan to be here for half that time, or even a third of that time, but has agreed to work with us as we restructure the operations of the Company, and he has been of immense value, as you could imagine, bearing in mind he was the Chairman, or still is the Chairman, of GPT. He's been of immense value in assisting us in the strategic assessment of that alternative.
You asked specifically why is he classified as not independent. It is purely because of the requirement under the ASX Listing Rules and the Stock Exchange classification of what represents independent or not independent, which is reflective of the number of years that one has served as a director.
So I think the rule is that once you've served for nine or ten years as a director, you're automatically classified as non-independent.
Shareholder # 1: On the issue of Ms Curin, which is written up on page 28 of the Annual Report. Now, Ms Curin announced her resignation around 17 August 2004, and she took up her job on 8 September 2003. So she's been going for 14 months. but she doesn't want to relocate to Sydney, Australia. She's a London-based lady.
My question is "Why isn't there a viable line of succession in the Company?"
David Crawford: The aspect you raised, and it was a far-reaching question relating specifically to Jo Curin, but I think the question was more directed, and I think appropriately, to management succession, and I think that's an excellent question, if I may say so.
We set about, and we announced that very clearly at the Annual General Meeting last year, that we are on a restructuring work-out for the corporation, and that was why we had employed Mr Clarke to assist us in that, and one of the primary goals we set Mr Clarke to achieve was to restructure the management and the succession plans for the corporation. If you go back to my opening comments when we introduced our front bench here, and we have both the front bench and we have the reserve front bench with us today, the management team has been restructured.
We are significantly advanced on succession plans, and Mr Goldmark, who chairs our committee dealing with remuneration and succession issues, has as part of that formal part of that committee a detailed consideration of succession issues which is very important. We don't shirk from that, but it's one that we are addressing upfront.
Shareholder # 2: I have only been a shareholder for 14 or 15 years, and shortly after I joined, MLC finished up under the umbrella of Lend Lease, and MLC is a company that I've had some dealings with over the years and I have been very impressed by them. Next thing we knew, you sold MLC off and Lend Lease started a downhill skid, culminating at the last annual meeting I went to before this, where the Chairman, who was Jill Ker Conway, made a joke of us shareholders saying, "There's no point saying you want franked dividends, you'll have to pay tax."
When you refer to those dividends, and I'm pleased to see that you anticipate Lend Lease heading the upward ramp, are those dividends franked, unfranked or what percentages?
David Crawford: We have paid unfranked dividends this year, as we had announced would be the position when we had this annual meeting last year. We have indicated that if the merger is to proceed, there will be a special merger dividend which is franked, but the extent to which future dividends can be franked will be a factor of the taxable income and the tax that's paid in the future.
Shareholder # 2: I realise this because income derived from overseas in general either is, so my daughter who is a principal partner in an accounting firm tells me, there are certain tax benefits from this, but in general it has to be earned in Australia to give a massive franking credit, doesn't it?
David Crawford: That's correct.
Shareholder # 3 (ASA representative): Firstly, I think we've got to say that the financial turnaround is excellent, and that's something I've got to congratulate the management on, but there are areas which are of personal concern to me. One is the succession planning process where we have recruited a lot of people from overseas, and I hope Mr Longes can use his 18-year knowledge of who the middle ranks are, who's promotable. Surely, this is one of the critical roles of non-executive directors, and, I guess, also the chief executive.
I have two issues about interaction with stakeholders. The first is the safety issue, which I briefly mentioned to Mr Edington earlier today. I compare this Company with Leightons, who are down to one lost-time injury per million manhours. Now, that can be doctored in all sorts of ways, but it needs to be seen as being a major corporate culture drive. It's mentioned in the annual report and we know that management get picked up and even thrown out if they don't adhere to the safety culture of the enterprise. It doesn't come across in the annual report, I'm afraid.
The second issue is community awareness issues. Being in the development business, our Company will always be involved in interactions with people who are used to the prior use of property, and you were saying we want a new use for the property. I speak particularly of the ADI site. Somehow, there has to be a balance between development of the urban area and, unlike Brisbane of course, we have a whole string of municipalities here. I would hope that there can be reasonable compromises, and I guess we've got money at risk if we don't get as many blocks as we planned in the beginning, but it is important, those woodlands.
The last point I guess I might make is that shareholders have to accept the Company's decisions on franking or not franking, but I was a little bit concerned that you couldn't even say, "Well, you know, there will be some franking next year but we can't say how much," which is what I would expect.
David Crawford: Firstly, thank you for your positive comments about the financial turnaround. I think that is just reinforcing the message that Greg gave in his operational review.
In terms of the observation about succession planning, I hope I addressed that in responding to the previous questions.
In terms of the two other issues you raised, one is safety and the other is community awareness. People might think this is a ‘Dorothy Dixer’ question, because actually the safety issue is something about which Greg is passionate, so I'm going to ask him to respond to that, and then I'm going to ask Rod Fehring, who heads up our development business, to just explain the extent to which we at Lend Lease regard our commitment and involvement with the community as absolutely fundamental to the way we carry on our operations.
Greg Clarke: I think many corporations have fine words about safety, and I'm not going to point fingers at anybody. I think you have to look at the behaviour of the organisation and how it treats safety. I'll give you some examples.
We have a bonus scheme that links performance to a number of factors, one of which is safety. I was eligible for a bonus payment, or would have been eligible for a bonus payment last year because of our improved safety record. However, I turned it down because my personal belief is that the chief executive who takes money for keeping the people safe who work in the organisation isn't worthy of the title. So I have a strong, ethical commitment to safety which I try to make sure guides my actions.
Secondly, I take a personal role in all injuries. I have sat on three conference calls in the last two weeks. One was a fall in Singapore. The second was an electrocution in Australia, and the third was a fatality in New York. Some guy fell from a crane, which was particularly unfortunate. A lot of things went wrong.
I personally oversee every inquiry into every injury. I get on a conference call with the people involved and I go through the process to ensure that we have visibility. Now, to the best of my knowledge, looking at the average fatalities, because in our industry, operating across many countries around the world, people get killed. That is completely unacceptable, and it's my personal and highest priority to ensure that we drive down our injuries in our organisation to what we call a zero level of tolerance, i.e. incident and injury free.
One of the key problems we have in our industry is that people don't care enough about their own safety. If people have been working on construction sites for many, many years, the biggest issue is they don't have enough concern about their own safety. They think, "It's not going to happen to me." That's our biggest enemy.
What we try to do is to get the children of construction workers to design posters with the basic theme of "Please come home in the evening, Daddy." Because whilst they think "Well, I'll be okay," they do worry largely about their wife and kids and what would happen to them.
So it's a hearts and minds issue, to change the minds of the people who work with us and for us. It's a hearts and minds issue to make sure that the first thing that comes into the mind of everybody in Lend Lease in a management role is that the first priority is safety. It's not about profit. It's not about shareholder value. It's not about quality. It's not about sustainability. It's not about the environment. All of those things can wait if it puts anybody at risk of injury or death. And that's a process that will never stop.
We recalibrate our benchmarks every year to tighten the range. I take a personal interest in every team meeting and every meeting of our senior management team on where we're going on this issue. We actually started this program of incident and injury free before my time, but since it's been running, the average number of people who are killed in organisations that are doing work for us has halved.
Now, that's still at a completely unacceptable level, but if we can keep on halving it and keep on halving it, we will get to the point where people do not get killed. And if we get to that point, the next battle is to ensure that we stay there and people do not get complacent, but I give you all a personal assurance that it's my highest priority.
Rod Fehring: I'll make two comments on community issues. The first is to acknowledge the importance of community engagement across the board in the work that we do. Culturally within the organisation, the approach that we take is very much an engagement process rather than rely on the legal process and confrontational process to secure development rights. On an ongoing basis, that's the only way for us to conduct a business in a viable way going forward.
The second comment I'd make, particularly in relation to the ADI site, is that the key issue here in relation to engaging with people on the ADI site is to find balance. The key to the outcome at ADI, and we are now in the process of commencing the development at ADI, is to get the right balance.
Now, there is a 900-hectare regional park being established within the site. There is a management plan for fauna and flora on the site being put into effect. There is a significant regional recreational facility to be developed and delivered to the community and the region as part of the development, an affordable housing component, 5,000 jobs, as well as the housing component within the project.
We think that's a good balance, and the planning authorities associated with us think that's a good balance, and the people that we engage with now, of all sorts, are arriving at the point where they believe it's a good balance too. There will always be people who disagree, but I think, in the end, we've got to be open enough and constructive enough in the way we engage to ensure that we can demonstrate how that balance is achieved and then move forward.
Shareholder # 4: I notice in your report on page 47 that the dividend franking account balance is $45 million. Will this $45 million be used in the proposed merger special distribution, and if the merger fails to proceed, what will happen to the franking distribution? When will Lend Lease return the franked dividends to shareholders?
David Crawford: The answer to the question is, yes, that franking credit will be utilised in the payment of the special merger dividend if the merger proceeds. If the merger doesn't proceed, of course, the special dividend is not paid and, therefore, that franking credit will be available for inclusion in future dividends paid out by the corporation.
Shareholder # 5: Given the litigious nature of people in America, what provisions have been made for possible claims by workers on the World Trade site in America as health problems have been reported?
Greg Clarke: Going back to the World Trade Center disaster on September 11, 2001, the first thing that we and other civil engineering contractors and constructors in New York did was to offer our immediate help to the community in New York, raced down to the site and did what we could.
The Federal and State governments put in place a US$1 billion bond to cover liabilities picked up by any organisations that were acting in good faith and were working with the metropolitan borough of New York and the city of New York to render assistance in that emergency. That was designed to make sure that those people acting in good faith were protected against any future litigation. So there's a $US1 billion US Government bond in place and a captive insurance company which will be earning interest, so it will be increasing in size going forward.
The legal advice that we've obtained says that we were acting in good faith, we did the right things, we followed the right procedures but, as you pointed out, there is a strong current of litigation in the USA and, inevitably when such a pot exists, some lawyers put together a class action suit, which was very small.
I have to say such litigation as that in New York is particularly unpopular at the minute, but we believe that we have significant cover under the US$1 billion captive established by the Federal Government, and we don't believe we have any other contingent liabilities in excess of this.
Shareholder # 6: I just wanted to get some confirmation relating to the buy-back price and the dividends, which I couldn't get on the information line. Could I get some confirmation that in addition to the buy-back price, whatever it might be in the end, the shareholders will receive the 23.8 cents fully-franked dividend plus the pre-merger unfranked dividend of 32.4 cents per share?
David Crawford: The answer to your question is yes, but I'll ask Greg if he's got anything to further respond.
Greg Clarke: Yes, the dividends fall into two characteristics, and your numbers are exactly right, sir. The special dividend of 23.8 cents is indeed fully franked should the merger go ahead, and there will be a stub dividend payable up to the period when the deal consummates in December, which is likely to be 32.4 cents, which will be unfranked.
Shareholder # 6: Thank you. And the buy-back price, of course, will have two components, a capital component and unfranked dividend?
David Crawford: Correct. And we won't know what the buy-back price is till we find out what the tenders are.
Shareholder # 6: Yes, but the buy-back price will be a minimum of $10.80? It wouldn't be less than that? Isn't that correct?
David Crawford: It is up to individual shareholders to elect at what price they wish to proceed at, and the Board – when it receives all of the information available on the submissions – will then make a decision.
Shareholder # 6: The other question I have is if a shareholder decides to sell on the Stock Exchange before 6 December, will that shareholder still receive the franked dividend of 23.8 cents and the unfranked dividend of 32.4 cents?
David Crawford: No.
Shareholder # 1: There is a big issue that I'm pleased to bring it up. Page 37 of the Annual Report has, unfortunately for Lend Lease, one-off items, and in the letter of 17 March from the Company Secretary with the half-year dividend in December last year, it noted the $79.7 million profit after tax from the sale of Lend Lease's stake of IBM Global Services Australia Limited. Well, that was very nice to get that pronouncement, and it's good money.
Also on one-off significant items, you've got $18.7 million from taxation consolidation. That's quite a good profit, too. That's not petty cash - $18.7 million. So, I was worried about two things there. I hope we do not have more one-off significant items in the 2005 financial year. You might be able to make a comment or reply about that.
The other thing is, perhaps you could tell me why, in the total assets column, alongside the IBM Global Services Australia entity we've got $80 million of assets? On the one hand, you have sold IBM Global Services Australia, and you have achieved a $79.7 million profit, which is quite good. It might be timing or some accounting standard that I don't know about, but how can you have when you have sold it, on the other hand, a column that says $80 million assets?
Also, in relation to Ms Curin, we are very worried about any extra special golden pay-out package deal that she may or may not get, and you did not come back on that. Are there going to be any more significant one-off items in 2005, and why is there that $80 million in that asset column when we have sold it?
David Crawford: Thank you. As usual, you are always making sure that we answer each and every one of your points or questions. Well done.
In terms of one-offs, I'm not sure I would necessarily agree with you that I hope there are no more one-offs, because when they occur, they are actually very beneficial. However, I think the underlying thrust of the question is we don't want to be relying upon one-offs to continue to generate operating profits going forward. That's absolutely fundamental, and we are not expecting any significant one-offs, and, yes, I'll ask Greg to comment.
Greg Clarke: I think the observation I would make, and they are both relevant points, is that if you look at the analysis of our operating earnings, excluding the tax improvement and the IBM GSA sale profit, they were up 10% on like-for-like operating earnings, excluding one-offs. So our objective is quite rightly and properly to identify one-offs so people can look at the underlying business and see if there is any growth coming from there. And our objective is to make sure we get double-digit growth from our underlying core earnings.
David Crawford: In terms of the second question relating to the $80 million still sitting in the accounts, that's still a receivable relating to the sale. The payment for the sale was in two parts. We've received half up-front and the other half in September 2004.
Your question where you picked me up on not responding specifically related to Jo Curin. I think it's important to note that Ms Curin's contract was detailed in the annual report, and it says that she will be entitled to receive termination payments, including base salary, for the remainder of the notice period, which was 12 months, that she doesn't serve out, a cash value of pro-rated prescribed non-monetary benefits, pro-rated STI entitlements based on 60% achievement of objectives, and LTI entitlements pursuant to the LTI rules. Any termination due to Ms Curin will be calculated on this basis, which is in accordance with standard practices and contracts. The P&O committee has overseen this and is satisfied that what she will be receiving is appropriate.
Shareholder # 7: I have a question in regard to the residential development in Sydney. Could the shareholders have the first priority to buy into this?
David Crawford: The simple answer is that in terms of the business we carry on, we must be concerned to act ethically, responsibly and appropriately in the interests of all shareholders. So we would be selling all of those units and assets in the ordinary course of business on the open market.
Shareholder # 8: My question relates to Lend Lease urban developments with high rises. Recently there was poor publicity regarding a developer not having proper building safety compliance, and Lend Lease is now engaged in low level housing and also some apartments and high rises. Does Lend Lease have a problem with building safety compliance and, if so, how do we deal with it?
Bob Johnson: We don't have any issues in the high rise apartment blocks. When we are building them, we go through stringent processes to obtain the appropriate authority approvals and then we go through our own internal processes to make sure we are compliant with all the safety procedures and practices right throughout the business. So, we don't have any issues in our high rise apartment buildings.
Agenda Item 2 – Election of Directors
The following resolutions relate to the election of directors, and we are happy for shareholders to ask questions of those being nominated. I'll hand over to Richard Longes, our Deputy Chairman, to chair the meeting for agenda item 2.
2(a) Election of David Crawford as a Director
Richard Longes: Thank you, David, and good morning, ladies and gentlemen. It's my pleasure to propose the re-election of David Crawford, our Chairman. I think you've already seen today the professional approach that he has brought to chairing this company and his incredible detailed knowledge which is what you would expect from a man of his career and professional training, which is already set out in the notice of meeting. But I'd just like to add two small pieces of colour to that.
During a time of euphemistically called ‘change for the company,’ David provided fantastic leadership. He has been a huge strength to the Board. He has set very high standards, but he has set even higher standards for himself, and his wisdom and stability have, I think, now borne the fruits that you are seeing. He has a very good working relationship not only with Greg, but with the other senior management.
Perhaps an issue that always seems to come up at AGMs is in terms of time. All I can say is, I can only assume David Crawford does nothing else because over the last six months he’s basically been working full-time on Lend Lease. He has put in a huge amount of time. He is always available for either a Board member or an executive when they wish to get hold of him. At the drop of a hat he's available for a meeting. He has put in a huge amount of time. So, on that basis, I'll now ask David to say a few words.
David Crawford: Thank you, Richard, for those very kind words. Ladies and gentlemen, I said in my opening comment that I'm proud to have been the Chairman of Lend Lease, and I mean that most sincerely, and I'm very proud to have had the opportunity of working with the directors who you see here today, and particularly with Greg and the management team, and proud of what we have been able to achieve in a relatively short time.
I look forward to continuing to work in your interests, the interests of all of our shareholders, to continue to improve our performance. Thank you very much.
Richard Longes: Thanks, David. Now, is there any discussion?
Shareholder # 1: I'll second the resolution.
Motion was carried.
2(b) Election of Gordon Edington as a Director
David Crawford: We're dealing here with the agenda item 2(b) in relation to the election of Gordon Edington as a director.
Gordon joined the Board in late 1999 and is our UK-based non-executive director. He has wide-ranging experience in property and provides the Board with particular insights into property in the UK market, where we foresee much of Lend Lease's future growth potential.
Gordon is an enthusiastic - and he certainly is that - and hands-on director, who often embarks on extensive site visits to further his grassroots knowledge of our businesses and sometimes really stir the pot with some of our executives. He's also Chairman of our Risk Management and Audit Committee. The Board unanimously endorses the reappointment of Gordon, and I'd ask Gordon if he'd be prepared to say a few words.
Gordon Edington: Thank you, Chairman, and good morning to each one of you. I think when I was last re-elected, I told you that because I believe it's very important for directors to align themselves with shareholders, on the first day that I joined this Board I invested $300,000 in Lend Lease stock, and so I have a great incentive, side by side with you, to ensure that our stock continues to grow in value. I hope very much that you'll give me the opportunity to do that. Like you I'm sure, I recognise the huge efforts that the management team have made over the last 12 months to make a real positive change in the value of our investment.
I must say I'm extremely optimistic about the future of Lend Lease. I think we have a very sound platform around the world. We have businesses that are in very good shape and we have some extraordinarily talented, creative and dedicated people – 9,000 of them – who are working very hard for all of us as shareholders. Under Greg's leadership, I think we will see the value of our investment continuing to grow, and I absolutely believe that Lend Lease will reclaim its position on the podium.
I will certainly happily continue to do all I can to support the business around the world, but in particular in the UK, which is where I'm based, and I must say I think it's looking very good there.
Bovis Lend Lease is continuing to win more excellent work. I don't know if you read about it. It certainly made big headlines in the UK: "Australian company chosen to build 500 million Aussie dollar" - it was obviously in sterling - "stadium in Liverpool". So really high-quality projects that continue to be won by a team of people in a company which was originally established in 1880. So it's a company with a very fine history which is continuing to do very well in the UK and, indeed, around the world.
Also, with projects like Greenwich, it's clearly very important for a non-executive director not to get in the way and step over the red line into management. But certainly on Greenwich I spent many, many hours with the management team sharing my experience with them as to how that transaction could be well structured, and how we could position ourselves well for planning consent. It's great credit to the team that we've now, as Greg indicated, secured the largest planning consent ever granted in Britain on the Greenwich site.
And also the business that Adrian Chamberlain runs, part of which is the partnerships with government, particularly in the health and defence sectors. I like these deals, I must say. We're receiving cheques on sort of a monthly basis which effectively say "Paid by Her Majesty's Government". Now, even to those of you with a slight sort of Republican leaning, I think you'd probably agree that that sounds pretty good.
As you know, external directors are not there to do. That's for Greg and Ross and, I hope, Nic, and Adrian. We're there to guide and to govern and to support, and I hope very much that I will be able to continue to play my part as a complementary member of the Board.
I also hope very much the GPT merger goes through. We don't know sitting here today, sitting here now, whether it's going to.
I've spent my whole life working in or running companies that own substantial property portfolios, the last one, as you may remember, owning a portfolio of airports, like Heathrow, Gatwick and Melbourne - very complex. So GPT for me is certainly going to be a lot more simple than that. But for me, also, the GPT transaction will be coming home, in a sense. That's exactly what I do, what I've done all of my life.
And also, I think you can look at the GPT portfolio and say, "Well, how has it been put together?" It's been put together by the efforts of almost generations of very skilled Lend Lease people. And, again, if you look at the GPT portfolio with European or North American eyes based in Frankfurt or London or New York, you say, "What an extraordinary quality of portfolio that is and what skilful people have put it together and continue to run it!"
So I feel very enthusiastic and optimistic about the future, and, if you would allow me, I would very much like to continue to be a director of this company. Thank you.
Motion was carried.
Agenda Item 3 – Amendment of the Constitution
David Crawford: Agenda item 3 relates to the approval of amendments to the Company's Constitution. These amendments do not relate to the merger proposal.
The current constitution was adopted in 1997, and there have been a number of minor amendments since then. Recently there have been changes to the Corporations Act and the Stock Exchange Listing Rules, as well as important corporate governance developments. There have also been changes in general industry practice, as well as advances in technology which affect the way in which we all now do business.
This resolution deals with amendments to the Constitution which reflect those changes and developments. These amendments are summarised in detail in the materials accompanying the Notice of Meeting. For this resolution to be approved, at least 75 % of the votes cast by shareholders must be in favour of the resolution.
Motion was carried.
ANNUAL GENERAL MEETING ADJOURNED
SCHEME MEETING CONVENED
David Crawford: Ladies and gentlemen, I note that we have a quorum and that all documentation required by the Court has been sent to members. The motion before you is to approve a Scheme of Arrangement between Lend Lease and each of its shareholders. Approval of this Scheme will allow Lend Lease to proceed to implement the merger with GPT and the stapling of Lend Lease shares to GPT units.
All shareholders were sent comprehensive documentation explaining in detail the structure and benefits of a merger between Lend Lease and GPT. I apologise for the volume of information but, unfortunately, it's mandated by legislation and by the Court.
Before I commence our discussion and consideration of the proposed merger and the share scheme, I believe it is important to put some of the more recent events into context.
The merger proposal before you today represents the culmination of work that your directors and the Lend Lease management team have undertaken over the past 18 months. This has been an arduous process, but one that has at all times been conducted with the highest levels of probity and transparency. At every stage, the emphasis has been on ensuring that GPT's Independent Directors and unitholders understand the rationale and benefits of a merger with Lend Lease. Considerable resources have also been dedicated to ensuring that the market has a similar understanding.
Some have called for today's meetings to be postponed to allow investors more time to evaluate the recent Stockland proposal. An evaluation of the proposal has already been conducted by GPT's Independent Directors and by Grant Samuel & Associates, the Independent Expert.
Stockland has said to the market that there is no material information about its business yet to be disclosed. We do not believe that postponing the meetings is either prudent or practical, nor do we believe it to be in the best interests of either Lend Lease shareholders or GPT unitholders.
GPT's Independent Directors share your Board's view that it is important that a process that has been mooted for more than five months should not be hijacked by a party simply floating an inferior proposal in order to disrupt the merger proposal. We remain convinced that a merger between Lend Lease and GPT is the optimal strategy for both sets of investors.
The merger will form the second largest listed property group on the Australian Stock Exchange. The combined group will have a market capitalisation of more than $10 billion and will be a top-20 ASX listed entity. Standard & Poor's has confirmed that the merged group will be included in the ASX200 listed property trust index.
Bringing together GPT's $8 billion high-quality property portfolio with Lend Lease will give the merged company the scale required to fully exploit growth opportunities both in Australia and in key international markets. Your directors believe the proposal binds together the best business strategy available to Lend Lease with the most efficient organisational structure and capital management, and that will give us the greatest capacity to maximise shareholder returns over the next decade.
The potential financial benefits to Lend Lease shareholders are numerous. They include increases in distributions and dividends; increased net asset backing; significant cost savings and synergies; a more efficient capital structure with a lower cost of capital; and improved ASX index weighting.
From a strategic perspective, the merger secures the ongoing relationship of Lend Lease with GPT. We believe it provides an enhanced risk return profile and creates a very strong Australian based property group with an international platform for growth. The merger is expected to enhance the market leading positions of Lend Lease in urban community development, retail property development ownership, and wholesale real estate funds management.
The increased scale and asset ownership capacity of the merged Lend Lease group will make it well placed to benefit from consolidation and development opportunities in the retail property sector in Australia, the UK and Singapore.
The group's scale will also assist in maximising our share of the growth of master planned urban communities in Australia and in the UK, and the increased levels of construction activity in key international markets, including growth in private finance initiatives in the United Kingdom. As a result of these benefits, we believe the merger provides the best path for the long-term growth of Lend Lease.
If the merger is implemented, existing Lend Lease shareholders will hold 41% of the merged group, and existing GPT unitholders will hold 59%. 71% of consolidated pro forma forecast earnings for the year ending 30 June 05 is expected to come from the investment assets predominantly owned by GPT, although Lend Lease will also be contributing earnings from its interests in high quality assets such as Bluewater and King of Prussia. The remainder will come from Lend Lease's real estate development project and construction management and wholesale funds management operations.
The merger is to be implemented through a stapling of Lend Lease shares and GPT units, such that each stapled security will comprise one existing Lend Lease share stapled to a GPT unit consolidated from up to 3.8 existing GPT units. So if the merger proceeds and you wish to participate as an investor in the merged business, you will be entitled to one stapled security for each Lend Lease share you hold at the record date.
As part of the merger, Lend Lease shareholders will also receive merger dividends totalling 56.2 cents per share. This comprises a special fully franked dividend of 23.8 cents per share and an unfranked dividend in respect of the estimated profit after tax before goodwill, amortisation and merger costs for the period from 1 July 04 to 30 November 04 of 32.4 cents per share. Of course, the merger dividends will only be paid if the merger is approved.
It would be inappropriate for me not to recognise that there are some potential disadvantages associated with the merger. These potential disadvantages have been addressed in the Explanatory Memorandum and considered by the Independent Expert in his report to shareholders. They include a possible short-term reduction in earnings growth compared to that which Lend Lease may achieve on its own, and potentially adverse tax consequences, depending upon individual shareholder circumstances. However, your directors believe the lower risk profile of GPT's high quality portfolio, plus the expected access to and lower cost of capital as a result of the merger, outweigh any potential reduction in short-term earnings growth, and provide the potential to enhance longer-term earnings.
The Independent Expert's assessment is that the advantages of this proposal outweigh any disadvantages and that the proposal is in shareholders' interests as a whole.
The Board believes the merger to be a transforming opportunity for both businesses. We believe we have developed a compelling, strategic rationale for a merger and that the terms are both fair and beneficial to both groups of investors.
The proposal is now in shareholders' hands to determine, and we strongly recommend that you support it along with all of the resolutions required to implement it.
There has been some market speculation over the last few days that a negative vote on this proposal will lead to an auction to take place between prospective investors or prospective participants in GPT.
Given the impracticalities inherent in schemes, and that's very important - given the impracticalities inherent in schemes which Lend Lease has previously publicly disclosed, Lend Lease confirms that if the resolutions to approve its merger with GPT are voted down by GPT unitholders, the proposal will lapse and Lend Lease does not propose to put any further merger proposals to GPT unitholders.
Consequently, GPT unitholders who wish to take advantage of the Lend Lease merger proposal should vote in favour of that proposal at the meetings being held today.
Lend Lease has a clearly superior set of proposals on the table, and if GPT unitholders wish to take advantage of them, their only choice is to vote in favour of them.
Shareholder # 8: Have you heard from your registry whether the 4.8 % held by the Lowy interests has voted in the proposal?
David Crawford: No, we do not know how that shareholding will be voted at this afternoon's meeting.
Voting on this resolution will be by way of a poll. On a poll, you'll have one vote for every share in the company for which you are the registered holder on the voting record date.
The resolution will not be passed unless a majority in number of persons present and voting either in person or by proxy at the meeting vote in favour of the resolution and unless 75 % of the votes cast on the resolution are cast in favour of the resolution.
The results of the poll are as follows. In accordance with the company's constitution, the resolution was passed by a majority in number of the members present and voting either in person or by proxy. For the resolution, 190,662,548 votes, representing 99.2% of votes cast.
Thank you very much. I do very warmly thank you on behalf of the Board and management for your support for our proposal, and I would have to say that represents one of the highest votes that I have seen in my corporate career.
Motion was carried.
In order for the merger to proceed, the proposal still requires the approval of GPT unitholders at a meeting this afternoon.briefing
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