A battle is brewing in the local listed property sector as bidders race to acquire struggling SA Corporate Real Estate – one of the country’s oldest JSE-listed property companies.
Emira Property Fund and Dipula Income Fund have made separate JSE Sens announcements that they are bidding for the entire issued share capital of Cape Town-based SA Corporate, and Moneyweb understands that Investec Property Fund (IPF) is now also planning to enter the race. Three industry sources, including one from SA Corporate, have confirmed that IPF is interested in making an offer.
Moneyweb sent queries to IPF last week, but all it would say in an emailed reply was that “Investec Property Fund’s management team will look into all and any deals that potentially add value to shareholders and present a strategic fit into the fund’s existing portfolio”.
SA Corporate issued a cautionary announcement on June 25 advising shareholders that the company has received a number of non-binding expressions of interest “from credible third parties relating to proposed offers for and/or mergers with the company”.
The group has established an independent board sub-committee to advise the board on the offers.
Dubbed a “perennial underperformer” in recent years, SA Corporate has been hit by boardroom spats and a rash of resignations in the past year. For its full-year to December 2018 it posted a 6% decline in distributions per share. The group has a R17.8 billion property portfolio made up of retail, office and industrial assets in addition to stakes in residential and self-storage properties.
Both Emira and Dipula are smaller property counters compared to SA Corporate, with portfolios valued at R14 billion and R9 billion respectively. IPF has a property portfolio valued at more than R21 billion.
Management at Emira and Dipula have been successful in turning around their companies under tough market conditions in recent years.
Emira was the first to officially announce a bid for SA Corporate on July 10, offering 0.25 Emira shares for each SA Corporate share. It said its “indicative proposal” exchange ratio implied a 23.2% premium based on the respective closing prices for each company’s shares as at June 6, 2019. Emira’s offer is effectively worth around R8.5 billion.
Dipula announced a counter-offer which it valued at around R9 billion on July 26, proposing a “friendly merger” with SA Corporate. Dipula said the offer price was at a 26% premium to the 30-day weighted average share price of SA Corporate as at July 9.
Speaking to Moneyweb last week both Emira CEO Geoff Jennett and Dipula CEO Izak Petersen confirmed being aware of other competing bidders for SA Corporate, but refused to name them.
Asked about Dipula’s counter-bid, Jennett said he did not want to comment on the offer, however he added that he believed Emira’s was a good one.
“Our offer is in the interests of Emira shareholders and will also benefit SA Corporate shareholders. We have turned Emira around with a quality portfolio and a strong management team in place and believe we can do the same with the SA Corporate portfolio.”
He added: “Both Emira and SA Corporate have a diversified property portfolio, operating in the office, retail, industrial and residential space. Emira has skills in all these sectors and many of our assets are complementary. However, we also evaluate assets on a case-by-case basis, so will look at recycling some assets that don’t make sense for us.”
Questioned on whether Emira would up its bid, Jennett said “everything is negotiable”. However, he stressed that Emira’s was an indicative proposal and that a full due diligence would need to take place if merger negotiations progressed.
He noted that two of SA Corporate’s top four shareholders are also large shareholders in Emira.
Petersen, meanwhile, says “it’s an open race”, adding that he believes Dipula has made a strong case to merge with SA Corporate.
“We believe we are the right suitor and have made a detailed announcement. SA Corporate is an exciting proposition for us as we share several synergies, like the fact that both companies are SA-focused. Dipula has a strong and effective management team, in addition to having solid black empowerment credentials.
“Our A and B share structure is another positive,” he adds.
Petersen says that with Dipula presenting a “friendly merger” offer, post-transaction SA Corporate shareholders would effectively own almost 70% of Dipula. “Our offer has been well received and we have already secured the commitment of some SA Corporate shareholders who are mutual shareholders in Dipula.”
Commenting on takeover talks around SA Corporate, Craig Smith, head of research and property at Anchor Stockbrokers, says: “Several companies are looking at it both officially and unofficially. Based on views in the market I think there’s a good chance a deal will be concluded.”
He adds: “In terms of the bidders, pricing is one aspect, but because it will largely [or exclusively] be a share-for-share transaction, investors will need to back the management team and strategy they think is most suited to extract value. Property funds considering SA Corporate will need to look at recycling of non-core assets, sweating of existing assets and a more focused strategy.”
Kundayi Munzara, director at Sesfikile Capital, says: “Based on current offers [for SA Corporate], we do not think it will be taken over if the acquirer does a thorough due diligence. While a merger may be the best option for SA Corporate, we do not believe that the acquisition will benefit the company acquiring it.”
Asked what went wrong at SA Corporate, Munzara adds: “The fund’s strategy may have lost focus over the last few years given the acquisitions across numerous sectors and joint ventures. Key staff members have left the business leaving the management team thin, considering the spread of differing strategies and investment vehicles.”