The Boards of Arrowhead and Gemgrow have announced their agreement in principle to a transaction which will result in the reverse takeover of Gemgrow by Arrowhead.
Gemgrow plans to acquire all of the shares in Arrowhead and it will issue 0.8237 Gemgrow B shares for every Arrowhead share acquired.
This transaction structure was chosen so that the merged entity will continue to leverage off Gemgrow’s dual-class share structure, which remains a valuable differentiator in the REIT sector.
Gemgrow was repositioned in 2016 following a transaction concluded between its major shareholders, Arrowhead and Vukile Property Fund, as a high yielding niche fund. Arrowhead currently owns 53.3% of Gemgrow.
Since listing, Gemgrow has successfully grown its property portfolio from approximately R4,3 billion to approximately R5,6 billion by proactively recycling assets, selling a number of its smaller assets and acquiring higher quality, larger assets. As a result, Gemgrow’s property portfolio is now more closely aligned with that of Arrowhead.
Matthew Nell, Chairman of Arrowhead commented: “Following extensive consultation, the respective Boards are of the view that there is no longer a clear rationale to retain two separate listings and believe that, in the current challenging environment, a simplified group structure would be more efficient and create synergistic benefits for all shareholders.”
Vukile Property Fund which holds 7.48% of Gemgrow’s A shares and 28% of the B shares, making Vukile Gemgrow’s second largest shareholder, has provided an irrevocable undertaking to support the proposed merger.
“In addition, the proposed merger will benefit Gemgrow shareholders by improving liquidity and providing a significantly enhanced Gemgrow A share cash cover. Furthermore, it will enhance access to equity capital markets which will support future growth”, said Gregory Kinross, Chairman of Gemgrow.
Post implementation of the merger, the merged entity will take steps to strengthen its balance sheet by reducing debt and will explore all available opportunities to unlock value by simplifying the group structure.