After a drawn-out takeover bid, Vukile Property Fund (Vukile) now has control of the Synergy Income Fund (Synergy) – a move largely welcome by quarters of the listed property sector.
On Tuesday Vukile announced that the fund has acquired all the remaining shares in Synergy – raising its stake in the company’s B-linked units to 75% and A-linked units to 8.5%.
This brings Vukile’s combined stake and voting rights into Synergy to 55%.
The transaction has effectively made Synergy a listed subsidiary of Vukile, signalling fresh consolidation for the listed property sector.
“The resounding positive reaction from investors underscores the offer’s sound strategy and pricing,” CEO of Vukile Laurence Rapp (pictured) told Moneyweb.
Rapp noted that Vukile plans to keep Synergy listed and might increase its stake further “at the right price”.
Vukile has made an offer to acquire the remaining Synergy B-linked units at a swap ratio of one Vukile-linked unit for every 2.67 Synergy B-linked units. It has extended a comparable offer to Synergy A-linked unit holders at a swap ratio of one Vukile-linked unit for every 1.65 Synergy A-linked units. The offer to unit holders lapses on Friday.
“Once the offer has been accepted by unit holders, we are not required by law to make a final offer to minorities,” he said.
The deal will see Vukile enhance its portfolio, as it looks to beef up its exposure in the retail sector to 60% of its portfolio mix. Vukile would own Synergy’s specialised portfolio of 15 medium-sized community shopping centres in rural areas and townships worth about R2.4 billion.
Synergy shareholders benefit from the deal
Director of Meago Asset Managers Jay Padayachi said the benefit of this deal to Synergy unit holders is the liquidity and diversification a holding in Vukile would offer.
“For Vukile shareholders the acquisition of the remaining shares would finally put this transaction to bed as it has been drawn out for a while and can lead to deal fatigue,” Padayachi added.
Vukile targeted Synergy since December 2013, but pricing got in the way and delays ensued.
Stanlib is one of the institutional investors which exchanged Synergy A- and B-linked units for Vukile units. Head of Stanlib’s listed property fund Keillen Ndlovu said Vukile’s income growth prospects in the medium to long term are expected to be more attractive.
“We believe that Synergy’s retail assets would be a good strategic fit in Vukile’ s portfolio and also provide an additional benefit of providing better liquidity,” Ndlovu said.
Rapp said Synergy shareholders would be in a “better position” by accepting its offer and selling into the fund. “If they don’t sell, who are they going to sell their shares to? We encourage them [Synergy shareholders] to take the offer,” he said.
Vukile, with a market capitalisation of R11.8 billion, initially held a 34% stake of Synergy’s B-linked units but increased its holding to 40% by netting a 6% stake from the Liberty Group and Stanlib Asset Management.
This triggered a mandatory offer by Vukile to acquire further Synergy B-linked units according to JSE rules.
Rapp said on a balance sheet basis, Vukile has the upper hand. Vukile’s gearing for the six months ending September 30 has reduced from 29.7% to 23.6% (y/y) and 89.4% of its debt has been hedged.
“Synergy is sitting at 37% of gearing. 51% hedged, [with] no or limited authority to issue shares. Synergy, in fact cannot grow from where they are,” he said.
Head of property at Investec Asset Management Peter Clark said the deal between both counters being drawn out is never good. “A position of stalemate is never great in these situations, and so we are glad to see the deal being moved forward,” Clark said.
Vukile shares were up 0.5% to R19.75 on Tuesday 15:31. Synergy A shares were up 0.4% to R11.85 and B shares remained flat at R7.54.