JSE-listed property giant Growthpoint has made a £150 million (around R2.9 billion) offer for a 51.2% controlling stake in small-cap UK property fund Capital & Regional.
The bid, made up of a partial cash offer to existing shareholders and a subscription of new shares in Capital & Regional, was announced in a statement on the London Stock Exchange (LSE) and the JSE on Thursday.
According to the statement, the directors of both groups have reached agreement on what they describe as “a recommended substantial investment by Growthpoint in Capital & Regional”.
The announcement came on the same day the UK unexpectedly secured a new Brexit deal with the European Union.
Growthpoint is offering existing Capital & Regional shareholders 33 pence in cash per share, which represents a 100% premium to the struggling UK counter’s share price on September 10. It wants to acquire 219 786 924 shares through the cash offer, which will represent around 30.3% of Capital & Regional’s current ordinary shares in issue.
The balance of Growthpoint’s proposed investment will involve a subscription to acquire 311 451 258 new shares in Capital & Regional at a price of 25 pence per subscription share. This will raise around £77.9 million (R1.52 billion) for Capital & Regional.
“The partial offer and the share subscription are inter-conditional,” the group said in its LSE statement. “On completion of the proposed transaction, Growthpoint will hold approximately 51.2% of the enlarged issued ordinary share capital of Capital & Regional.”
Speaking to Moneyweb late on Thursday following the announcement, Growthpoint group CEO Norbert Sasse said that in addition to the support of the Capital & Regional board, it also has strong support for the deal from several of the UK fund’s major shareholders.
This includes South African property investment tycoon Louis Norval, who holds around a fifth of Capital & Regional’s shares.
“We are quite confident that the offer, effectively valued at around £150 million, will be accepted,” says Sasse. “It will give Growthpoint a controlling stake in the group and will represent a significant step in our internationalisation strategy. “Ideally, if all goes according to plan, we should have a deal finalised before the end of the year.”
Asked if Growthpoint is paying too much for the stake, during an investor conference on Thursday afternoon, Sasse pointed out that Capital & Regional’s share price has been trading at a significant discount to its net asset value. He says as part of the share subscription offer, Capital & Regional had agreed with Growthpoint that at least £50 million of the proceeds will be used to reduce debt and fund capital expenditure.
Commenting on Growthpoint’s bid, Reitway Global’s chief investment officer Garreth Elston says he is currently not convinced that Capital & Regional will be “GOZ 2” for Growthpoint – in reference to Growthpoint’s first offshore foray into Australia over a decade ago, which has been a boon for the SA fund.
Elston adds: “From a first view we think that Growthpoint will potentially be overpaying for these assets. We are not convinced that we have seen the bottom of the UK’s retail fall and are expecting UK growth to slow further.”
He says Capital & Regional’s loan-to-value ratio both pre- and post the proposed transaction is concerning. However, he notes that the transaction will likely be accepted by most Capital & Regional shareholders, considering the attractiveness of Growthpoint’s offer.
Commenting on the proposed deal, Capital & Regional chairman Hugh Scott-Barrett says the board is unanimously recommending the proposed transaction. “We firmly believe it provides a transformational catalyst for the future growth of Capital & Regional to the benefit of all shareholders.”
He notes: “Not only does it provide a liquidity event for shareholders at a significant premium to the company’s share price prior to this announcement, it also delivers a cash injection of approximately £77.9 million that de-risks the business and provides a long-term foundation for growth.
“This puts Capital & Regional on the front foot, by reducing leverage and allowing our strong management team to focus its full attention onto executing its strategy and implementing the roll-out of its community centre asset management plan.”