Hedge fund Steyn Capital Management and freight operator Grindrod said they object to the terms of a planned share conversion to prepare South African hotelier Hospitality Property Fund for takeover by casino owner Tsogo Sun Holdings.
Investors have been offered 3.5 Class-B shares in Hospitality for each Class-A share they hold in the Johannesburg-traded company, which has a market capitalisation of R2.11 billion ($150 million). This way of ending Hospitality’s dual-share structure will erode value for A-share investors, hedge fund founder Andre Steyn and Ian Anderson, chief investment officer of Grindrod, said in e-mailed replies to questions. Steyn holds 1.84% of Hospitality’s A shares, while Grindrod has more than 5%, they said.
“Suddenly changing the rights of shares which were meant as low-risk, debt-like instruments into more risky equity-like shares is akin to walking into a French restaurant only to be handed a Chinese menu,” Steyn wrote in an October 26 letter to Hospitality’s board. “It’s not what we signed up for.”
Tsogo Sun acquired 54% of Hospitality’s B shares with the intention to reverse 10 of its hotels into the target company, it said in a November 18 statement to the regulator. Tsogo, South Africa’s biggest hotel and gaming company, would own more than half of Hospitality after the transaction.
The proposed deal will add a portfolio of hotels to Hospitality on a debt-free basis that reduces the loan-to-asset ratio, gives the fund a stable shareholder and further acquisition opportunities, Tsogo Sun CEO Marcel von Aulock said by e-mail on Monday. “It fixes a good company that is held back by a bad capital structure.”
Coronation Fund Managers, which held about 54% in Hospitality, according to a July 1 circular from the company, declined to comment on the proposal.
“The board of course has the responsibility to act in the best interest of all shareholders,” Vincent Joyner, Hospitality’s CEO, said by e-mail. “The proposed transaction is subject to the requisite regulatory and shareholder approvals, which will require a fair and reasonable opinion from an independent expert.”
Hospitality should have sold non-performing assets and raised prices at some hotels as the industry weakened in recent years, Steyn said by e-mail. The company’s earnings, the value of the A shares and the B-share dividend have all declined, he said.
“We still believe Hospitality’s A shares to be worth well more than the current market price, even if the exchange occurs at the mooted ratio,” Steyn said.
©2015 Bloomberg News