Redefine announced an amended offer to acquire all of Fountainhead’s properties, other than three assets earmarked as part of a broader Black Economic Empowerment (BEE) strategy.
“Following our initial offer, we have engaged with Fountainhead’s institutional investors and their Independent Board. Based on their feedback, we decided to improve our offer through an increased mix of Hyprop units, which enabled us to increase the consideration,” commented Andrew Konig, Financial Director at Redefine.
In terms of the revised proposal, Fountainhead unitholders will receive 4.5 Hyprop units and 56 Redefine units for every 100 Fountainhead units owned by them. This is approximately 6% higher than the original proposal and represents a forward yield (for the period ending 30 September 2013) of approximately 6.6%.
“Our offer represents a full price for the Fountainhead portfolio and is at a 23% premium to net asset value. We believe that the transformative benefits of the proposed transaction such as the size, location and exceptional quality of Fountainhead’s portfolio will far outweigh any potential short-term dilution that may result from the increased offer,” said Konig. Redefine also pointed to potential scope to minimise any dilution by reducing interest rates on Fountainhead’s existing interest bearing debt and synergies from managing an enlarged property portfolio.
Fountainhead’s Independent Committee has undertaken to engage exclusively with Redefine in relation to the proposed acquisition on the basis that it will not entertain discussions, negotiate or conclude any agreement with any other party relating to the sale of Fountainhead’s assets until the conclusion of the formal agreements. This undertaking will expire on 31 January 2013. The terms and conditions of the formal agreements remain unchanged and are conditional on the conclusion of formal agreements, regulatory approvals and the requisite approval of Redefine and Fountainhead unitholders.
Consistent with the objectives of the Property Charter, Redefine’s original proposal contemplated the continuation of Fountainhead and the use of three earmarked properties to seed a new portfolio as part of a broader BEE strategy.
Should this not be implementable, the amended proposal makes provision for Fountainhead to be wound up and the earmarked properties disposed of for shares to a newly established BEE company. Redefine indicated that the newly established BEE company will be listed as a corporate REIT to pursue this strategy, in which event the shares in the BEE company will be distributed to Fountainhead unitholders pursuant to the winding up of Fountainhead.
The amended proposal also addresses concerns raised by some investors about the potential lack of alignment of interests should the transaction not be implemented by providing an option to those investors who support the proposal to dispose of the Fountainhead units for the same consideration. Konig commented “It has always been our intention to acquire a significant interest in Fountainhead if the transaction is not implemented so that we can enjoy the full benefit of the value unlocked through focused management of the Fountainhead portfolio. This option, which we believe would result in a considerable direct holding in Fountainhead, is consistent with our intention and further aligns interests between Redefine and Fountainhead unitholders.”
Redefine advised unitholders to continue to exercise caution when dealing in their Redefine units until further announcements regarding the amended offer is made.
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