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Redefine opposes Delta-Rebosis merger

Cornwall Crescent, which has a stake in Delta and is backed by Redefine, is also against it.
Redefine CEO Andrew König says the group is against anything that is ‘value-destructive’. Image: Moneyweb

South Africa’s second largest real estate investment trust (Reit) Redefine Properties has weighed in on the proposed merger between Delta Property Fund and Rebosis Property Fund, saying it is against the deal.

In a pre-close presentation released on Monday, Redefine noted that it had initiated discussions with the board of Delta regarding its “non-support” for the potential merger with Rebosis.

With Redefine selling its 22.8% stake in Delta to BEE consortium Cornwall Crescent for R1.46 billion in 2017, some industry players have queried why Redefine is now pronouncing on the proposed Delta-Rebosis tie-up.

Read: Delta and Rebosis merger back on the table

Speaking to Moneyweb on Tuesday, Redefine CEO Andrew König said the group is against the merger because “Redefine carries some of the economic risk”. This is because Redefine facilitated the Cornwall deal through a loan to the consortium two years ago.

“We are against anything that is value-destructive, hence our opposition to the merger,” says König. “It may be tough for both Delta and Rebosis currently, but we believe Delta is in a better position and that a merger is not in the interests of its shareholders.”

He adds: “The proposed merger presents an economic risk for Redefine, because when the deal with Cornwall was concluded Delta’s shares were around R9 a share. Today, Delta’s share price is languishing around R1 a share.

“With Rebosis worse off, we have to question the value of this potential merge,” he adds.

Read: Delta share price continues to bleed following results

The Cornwall consortium is also opposed to the Delta-Rebosis merger. Portia Tau-Sekati, a member of the consortium, tells Moneyweb the group has spoken to Delta about its concerns.

Portia Tau-Sekati, a member of the Cornwall Crescent consortium. Image: Moneyweb

“Cornwall Crescent has engaged with Delta’s board to express and explain its opposition to the proposed transaction with Rebosis,” she says. “We feel the company’s [Delta] focus needs to be on strengthening the balance sheet and lowering gearing. Having heard our concerns, the Delta board undertook to re-engage with us once they have further assessed the proposed transaction.”

Speaking to Moneyweb, Stanlib senior fund manager Nesi Chetty said he thinks Redefine is cautious about the merging companies’ balance sheets being put together in a weak market.

“Although Redefine is no longer directly invested in Delta shares, the BEE consortium they are funding [Cornwall] does have exposure to Delta.”

Could Redefine have an influence on the proposed merger? “I don’t think so,” says Chetty. “Remember, BEE partners have their own board and process, so Cornwall will have to follow their due diligence process with regards to the proposed Delta-Rebosis merger.”

Industry insiders say both Delta CEO Sandile Nomvete and Rebosis boss Sisa Ngebulana are peeved with Redefine over its comments, which could scupper their merger plans.

Delta and Rebosis founding CEOs Sandile Nomvete (left) and Sisa Ngebulana.

“It is best I do not comment on what has been said,” Nomvete told Moneyweb on Tuesday. However, he reiterated his belief that the merger will be good for both Delta and Rebosis.

“Things are at a sensitive stage and clearly we still need to canvass all shareholders on the proposed merger with Rebosis,” he says. “We are working on the numbers and the planned structure of the merged group. The initial process is underway, and it will be premature for me to give specific details.

“However, once the proposal is finalised, we hope to communicate this with relevant stakeholders and the market.”

Garreth Elston, chief investment officer at Reitway Global, says: “As things stand, both companies intrinsically need some form of deal. It might not be ideal, but in the absence of a better deal, this will be the one shareholders need to consider.”

He adds: “There aren’t many details in the market on the potential transaction, so one cannot be sure what exact details are leading to Redefine’s comments. They may be looking after their loan [to Cornwall].

“Unless Redefine has seen proposed details of the deal, it’s still largely a mystery to the market.”

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