Wednesday, June 27, 2007

Poison pills can taste good

Just when I think I have a handle on all the holdings in my portfolio, Artis REIT, which I've held since last summer, put out a curious press release yesterday. And frankly, I'm not sure how to react.

Artis Real Estate Investment Trust (TSX: AX.UN) (“Artis REIT”) announced today that it has adopted a unitholders’ rights plan...The Rights Plan was not adopted by Artis REIT in response to any specific proposal to acquire control of Artis REIT and the board of trustees is not aware of any such proposal…Should a non-permitted acquisition occur, each right would entitled the holder of Units to purchase additional Units at a fifty (50%) percent discount to the market price at the time.

To my eyes, this basically amounts to management playing defense against a takeover by building in a poison pill that would water down any hostile bidders' stake. Which begs the obvious question: why is management worried about a takeover?

Indeed, from a shareholder's point of view, takeovers are generally good. You either sell your units to the bidder for a premium price, or the deal is rejected as management promises to come up with something better.

I've been very pleased with the holding since I've bought it, and I must admit this news has sort of thrown me for a loop. On the one hand, it's sagged a little of late along with all REITs due to concerns over rising rates. But analysts still love it.

I'm not really sure how to react. Your thoughts? Does the fact that management has come out with a defence plan for an unsolicited takeover bid I didn't even know was in the offing seem like a good thing or a bad thing in your book?

It's times like this my lack of finance knowledge can be a bad thing.

1 comment: said...

With the REIT industry valued relatively low (compared to pre-income trust death march) having some poison pills isn't a bad idea. With all the private capital floating around, it's almost a requirement to have a poison pill if you dont want to see your investment sold off for too cheap.

I've already had seen a few undervalued gems get sold off (Versacold Income Fund) too cheap, in my opinion. But then again, management was in favour of the sale, ugh).