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Letter To Unitholders Regarding Competing Proposals From Redefine And Growthpoint
Fountainhead Property Trust
A Collective Investment Scheme in property registered in terms of the
Collective Investment Schemes Control Act, No 45 of 2002 and managed
by Fountainhead Property Trust Management Limited
(Registration No. 1983/003324/06)
Share Code: FPT
ISIN Code: ZAE000097416
Unitholders are advised that a letter from the chairman has been
posted today, 28 February 2013, regarding competing proposals from
Redefine and Growthpoint. Set out below are the contents of the
letter.
“Unitholders
Fountainhead Property Trust
28 February 2013
Dear Unitholders
LETTER TO UNITHOLDERS REGARDING COMPETING PROPOSALS FROM REDEFINE AND
GROWTHPOINT
Introduction
Unitholders of Fountainhead (“Unitholders”) are referred to the
cautionary announcements released on SENS by Fountainhead in relation
to the unsolicited offers by Redefine Properties Limited (“Redefine”)
and Growthpoint Properties Limited (“Growthpoint”) to acquire the
underlying assets of Fountainhead (together, the “Proposals”).
The purpose of this letter is to:
1. provide Unitholders with details of the key considerations taken
into account to date by the independent directors of the board
(“Board”) of Fountainhead Property Trust Management Limited (“Manco”)
(“Independent Committee”), who were appointed to evaluate the
Proposals; and
2. update Unitholders on the process and inform them of the proposed
way forward in relation to the Proposals, in the light of recent
developments.
The Independent Committee notes that, notwithstanding exclusivity
with Redefine having come to an end on 22 February 2013, no written
sale agreement has yet been concluded with Redefine and that, in
addition, Growthpoint has recently revised its Proposal. The
Independent Committee is still considering the full ramifications of
Growthpoint’s latest revision to its Proposal.
All decisions of the Independent Committee in relation to treatment
of the Proposals have been guided by the Independent Committee’s
assessment of what is in the best interests of Unitholders. That
assessment follows a detailed, unbiased and balanced engagement by
the Independent Committee with all relevant stakeholders including
Redefine, Growthpoint, the Financial Services Board (“FSB”), the JSE
Limited (“JSE”) and the trustee of Fountainhead (“Trustee”). In
addition, the Independent Committee has insisted on the appointment
of advisors that are independent of Redefine, in the form of
FirstRand Bank Limited, acting through Rand Merchant Bank Corporate
Finance (“RMB”), as financial advisor and transaction sponsor, and
Bowman Gilfillan Inc. (“Bowman Gilfillan”) as its attorneys. The
Independent Committee has also been guided by the independent
assessment of the Proposals by QuestCo (Pty) Ltd (“QuestCo”), acting
as independent expert, regarding the valuation of the Fountainhead
units and Redefine’s offer consideration as well as Rode & Co
Proprietary Limited (“Rode”), in its capacity as independent property
valuation expert.
The thought process of the Independent Committee in arriving at the
decision to first proceed with the Redefine Proposal on an exclusive
basis in December 2012, as well the decision to extend exclusivity to
22 February 2013 is summarized below. Unitholders should note that
this is a dynamic process and, accordingly, the considerations set
out below, or the weight attached to each of them, may change with
subsequent developments. In this regard, and as noted above, the
Independent Committee is still considering the full ramifications of
Growthpoint’s latest revision to its Proposal. The Independent
Committee notes that there is no single correct answer to the issues;
rather, the Independent Committee is required to make its best
assessment of what steps are in the best interests of Unitholders,
and it is confident that it has done so to date.
Background
On 30 March 2012, Redefine issued a SENS announcement stating that it
had concluded an agreement with Standard Bank Properties Proprietary
Limited (“Standard”) and Liberty Holdings Limited (“Liberty”) to
acquire Manco and Evening Star 768 Proprietary Limited (“Evening
Star”) (the “management companies”) for an aggregate consideration of
R660 million. The acquisition became unconditional with effect from 1
August 2012, whereupon Redefine became the sole shareholder of the
management companies.
In the 30 March 2012 SENS announcement, Redefine indicated that,
subject to the acquisition of the management companies, it intended
to make an offer to acquire all of the assets of Fountainhead in
return for Redefine linked units and Hyprop Investments Limited
(“Hyprop”) linked units. Redefine subsequently issued a cautionary
announcement on 5 April 2012 restating its intention. In this 5 April
2012 cautionary announcement Redefine also indicated that it intended
to conduct discussions with key Redefine unitholders and Unitholders
in order to gauge their views on and support for its Proposal.
Redefine indicated that if the response was negative, it would
continue to manage the assets of Fountainhead through the management
companies.
On 8 August 2012, Fountainhead issued a cautionary announcement
noting that Fountainhead and Redefine had entered into formal
discussions relating to a possible offer by Redefine to acquire all
of the assets of Fountainhead in return for a combination of Redefine
and Hyprop units.
On 13 September 2012, Fountainhead issued a SENS announcement
referring to the possible offer by Redefine to acquire all of the
assets of Fountainhead and noting that the Board of Manco had
constituted the Independent Committee which, together with its
advisors, would consider any such offer that may be received by the
Board.
On 1 October 2012, Redefine submitted a Proposal to the Board (the
“First Redefine Proposal”), and on 23 October 2012 Growthpoint
submitted a competing Proposal to the Board (the “First Growthpoint
Proposal”). Upon receipt of the First Growthpoint Proposal, the
mandate of the Independent Committee was extended to the
consideration of all offers to acquire the underlying assets of
Fountainhead. On 24 October 2012 Fountainhead issued a cautionary
announcement noting that the Independent Committee would consider
both Proposals.
Following the release of Fountainhead’s annual results on SENS on 1
November 2012, which disclosed lower forecast distributions for the
2013 and 2014 financial years than market consensus forecasts,
Growthpoint submitted a revised Proposal to the Board (the “Second
Growthpoint Proposal”).
Over the course of the weeks that followed the receipt of the Second
Growthpoint Proposal, both Redefine and Growthpoint addressed a
series of letters to the Board regarding the rights and obligations
of Manco and the Board in relation to the disposal of the
Fountainhead property portfolio. The Independent Committee and its
advisors also conducted several meetings with the representatives of
both Redefine and Growthpoint in order to clarify the terms of the
Proposals and discuss regulatory, practical and timing issues
associated with the said Proposals. In addition, the Independent
Committee briefed Senior Counsel for an opinion on the legal issues
involved.
On 15 November 2012, Fountainhead issued a cautionary announcement
informing Unitholders of the terms of the Second Growthpoint Proposal
and noting that the Independent Committee had engaged with Redefine
regarding the provisions of a draft agreement for the sale of the
Fountainhead property portfolio to Redefine (the “draft agreement”),
and stating that the Independent Committee would continue to consider
the Proposals going forward.
On 13 December 2012, Redefine approached the Independent Committee
with a revised Proposal on improved terms (the “Second Redefine
Proposal”). On the same day, Fountainhead issued a cautionary
announcement setting out a comprehensive summary of all of the
Proposals received by the Independent Committee and noting that the
Independent Committee had concluded that, taking all relevant
considerations into account, it was in the best interests of
Unitholders for it to engage with Redefine with a view to concluding
a disposal agreement in respect of the Second Redefine Proposal,
which, if concluded, would be put to Unitholders for approval. The
Independent Committee was of the view that it would not be feasible
to continue to progress the Second Growthpoint Proposal or any other
third party Proposal during the period of its engagement with
Redefine, and accordingly undertook to engage exclusively with
Redefine in respect of the sale of Fountainhead’s assets until 31
January 2013.
During the course of December 2012 and January 2013, the Independent
Committee and Redefine, together with their respective advisors,
worked together to advance the draft agreement and on 30 January 2013
negotiations were completed in all material respects. However, on 30
January 2013, the Trustee requested certain information from the
Independent Committee, and advised that it was doing certain work, in
order for it to be satisfied that the provisions of the Collective
Investment Schemes Control Act, 45 of 2002 (“CISCA”) read with the
Fountainhead trust deed (“Trust Deed”) had been complied with in
respect of the proposed execution of the draft agreement.
Accordingly, the Independent Committee resolved to extend the
exclusivity with Redefine until 22 February 2013, in order to provide
time to respond to the Trustee’s request for information and for the
Trustee to do its work.
On 20 February 2013, Growthpoint sent a letter to the Chairman of the
Board setting out the terms of a revised Proposal on improved terms
(the “Third Growthpoint Proposal”). The Independent Committee has
communicated to Redefine that it will be considering the terms of the
Third Growthpoint Proposal and will revert to Redefine and
Growthpoint once the analysis of the Independent Committee is
complete and once all stakeholders have been consulted.
Conduct and composition of the Independent Committee
As noted above, the Independent Committee was initially constituted
by the Board to evaluate the First Redefine Proposal; however, on
receipt of the First Growthpoint Proposal, the mandate of the
Independent Committee was extended to the consideration of all offers
to acquire the underlying assets of Fountainhead. There have been
suggestions by various parties that the Independent Committee has
been biased in favour of both Redefine and Growthpoint at different
times. The Independent Committee has consistently approached the
Proposals in a balanced and unbiased manner and has focussed on
advancing the best interests of Unitholders. In this regard, he
Independent Committee would like to clarify the way in which it was
constituted and also reiterate that its mandate is to ensure the
interests of Unitholders are protected.
Fountainhead was originally known as the “Standard Bank Property
Fund” and later the “Allan Gray Property Trust” until it was renamed
the “Fountainhead Property Trust” on 1 June 2007 after The Standard
Bank of South Africa Limited (“SBSA”) purchased the shares in the
management companies. SBSA subsequently sold all of the shares in
the management companies to Standard and Liberty, who in turn sold
all of the shares in the management companies to Redefine, the
current shareholder of the management companies, with effect from 1
August 2012 (the “sale of the management companies”).
Shortly after the sale of the management companies, Mr. Stewart Shaw-
Taylor and Mr. Samuel Ogbu, the Standard and Liberty Board nominees
respectively, resigned as non-executive directors of Manco. This was
followed by the resignation of the Chief Executive Officer of Manco,
Mr. Anton Raubenheimer, who was replaced by Mr. Alex Phakathi, the
incumbent Chief Executive Officer. In addition, Mr. Andrew Konig and
Mr. Bernard Nackan were appointed as non-executive directors with
effect from 20 September 2012. As Mr. Andrew Konig and Mr. Bernard
Nackan are both board members of Redefine and Redefine International
Limited, they agreed with the remaining Board members that it would
be appropriate to exclude them from the Independent Committee, which
was duly constituted to consider the Proposals. The Independent
Committee is empowered to make decisions regarding the Proposals
without reverting to the main Board or Redefine.
The Independent Committee comprises five independent non-executive
members, all of whom were appointed before the sale of the management
companies: Mr. Michael Kirchmann (the Chairman of the Board), who is
also the Managing Director of Northprop and who has been involved in
the property sector since 1960 and was appointed to the Board on 1
June 1988; Mr. John Rainier, the previous Managing Director of the
Allan Gray Property Trust (as it then was), who is also an analyst at
RE:CM and has been involved in property management since 1980 and was
appointed to the Board on 30 June 1997; Mr. Victor Christian, a
former partner of Ernst & Young and a non-executive director of other
companies, who was appointed to the Board on 19 July 2006; Mr. Haroon
Laher, who is also the Head of Litigation at Bowman Gilfillan, and
was appointed to the Board on 4 December 2008; and Mr. David Savage,
who is also the Managing Director of Abland, and was appointed to the
Board on 2 August 2011.
None of the members of the Independent Committee were party, or were
consulted in relation, to the sale of the management companies, which
was concluded by Liberty, Standard and Redefine and presented to the
Board following the conclusion of the deal, as the consent of the
Board was not required in order to conclude or implement such
transaction.
None of the members of the Independent Committee receive remuneration
that is contingent upon the performance of Manco, nor do any of the
members of the Independent Committee hold shares in Manco, which is a
wholly owned subsidiary of Redefine. However, certain of the
directors have minor shareholdings in Redefine, Growthpoint and
Fountainhead, which are part of their diversified investment
portfolios and in which such holdings are immaterial.
None of the members of the Independent Committee are involved with
the management of Redefine, nor have they had any past involvement
with Redefine, save for Mr David Savage (in his capacity as Managing
Director of Abland) and Mr. Michael Kirchmann who have had
professional dealings with Redefine in the past, which were
completely unrelated to the Proposals. The Independent Committee is
independently advised by RMB and Bowman Gilfillan and has been fully
transparent in respect of all decisions taken in regard to the
Proposals.
The Independent Committee, together with its advisors, has conducted
several meetings with the representatives of Redefine and
Growthpoint, as well as with officials from the JSE and the FSB over
the course of the preceding months in order to clarify the terms of
the Proposals and discuss regulatory, practical and timing issues
associated with the Proposals. Mr. Andrew Konig and Mr. Bernard
Nackan have not been party to any of these discussions, except for
participation in certain of the meetings with Redefine where they
have been present in their capacity as representatives of Redefine.
As Fountainhead is listed on the JSE in accordance with section 50(1)
of CISCA, both Fountainhead and the Board are subject to the Listings
Requirements of the JSE (“Listings Requirements”). The Listings
Requirements, along with CISCA and the Trust Deed, set the rules of
engagement for consideration and implementation of the Proposals.
These are the rules by which the Independent Committee has been
guided and with which the Independent Committee has complied and will
comply in the future. To the extent that the provisions of the Trust
Deed or CISCA are silent regarding the obligations of the Board or
management in certain instances, the Independent Committee has also
referred to the takeover regulations of the Takeover Regulation Panel
(“TRP”) for guidance, where appropriate, even though they are not
strictly applicable to the scheme.
In this regard, the Second Redefine Proposal is a Category 1, related
party property transaction, and as such, is governed by sections 9,
10 and 13 of the Listings Requirements. Manco and Redefine are
related parties for purposes of the Second Redefine Proposal.
Accordingly, in order for a Proposal with Redefine to be implemented,
Fountainhead must obtain the approval, by ordinary resolution, of the
Unitholders, other than each related party and its associates. The
circular must also include a statement by the Independent Committee
confirming whether or not, in its opinion, the transaction is fair.
The Independent Committee will be guided in this regard by QuestCo,
as independent expert, which has been appointed by the Independent
Committee to provide a “fairness opinion”.
The Independent Committee has taken legal advice from Senior Counsel
on a number of matters including the most appropriate course of
action to be taken in the light of the Proposals currently under
consideration. In addition, RMB and Bowman Gilfillan have advised the
Independent Committee that its primary responsibility is to protect
the interests of Unitholders and to ensure that Unitholders receive
fair consideration that is, at a minimum, equivalent to the value of
their current Fountainhead investment, and to ensure that all
Unitholder interests, including those of minorities, are protected.
The requirement for contractual certainty
The Independent Committee was presented with written Proposals from
two offerors, and neither Proposal could be presented to Unitholders
until contractual certainty in relation to the Proposal had been
achieved. Such contractual certainty would preferably take the form
of a written sale agreement signed by all of the parties, but this is
not necessarily the only way to achieve sufficient contractual
certainty to take a Proposal to Unitholders. The Independent
Committee has resolved that, until such arrangements are in place,
there is insufficient certainty that the relevant Proposal can be
implemented and, accordingly, a Unitholder vote on the matter is
premature. Indeed, as a practical matter, the sale agreements
presented to the Independent Committee in relation to the Second
Redefine Proposal and the Second Growthpoint Proposal both insisted
on exclusivity. Finally, it should be noted that immovable property
can only be transferred in terms of a written sale agreement.
Although there may be merit in presenting both Proposals to
Unitholders, on the basis of two signed documents with a view to
presentation to Unitholders, the Independent Committee concluded that
such an approach would not be feasible, particularly within the
context of a competitive scenario and the threatened litigation
referred to below, and on the basis of the requirement of both
Redefine and Growthpoint for exclusivity at the time of the decision
of the Independent Committee to proceed exclusively with Redefine for
a limited period.
Accordingly, the Independent Committee resolved that it was necessary
to provide an offeror with exclusivity for a limited period in order
to finalise the terms of the disposal agreement. The Independent
Committee resolved to first engage with Redefine in this regard, for
the reasons and on the basis of the key considerations described in
greater detail below, and for such Proposal to then be presented to
Unitholders in a balanced manner. An important part the balanced
approach determined by the Independent Committee, at the time of
deciding to engage with Redefine for a limited period, was to seek
guidance from Unitholders, as part of a circular, as to whether or
not they would like the Independent Committee to proceed with other
third party proposals, in the event that the Second Redefine Proposal
was not approved by Unitholders.
Pricing certainty
The pricing of the Second Redefine Proposal is fixed and not subject
to any adjustment. The Second Redefine Proposal offers Unitholders a
predetermined value for every Fountainhead unit held and is not
subject to a due diligence investigation or a potential downward
price adjustment.
The Second Growthpoint Proposal and the Third Growthpoint Proposal
are subject to a price adjustment mechanism. The draft sale
agreement presented by Growthpoint in relation to the Second
Growthpoint Proposal contained a wide subjective discretion for
Growthpoint to make adjustments in this regard, following its due
diligence investigation. On the face of the announcement in relation
to the Third Growthpoint Proposal, it appears that Growthpoint seeks
to retain such a subjective approach, although the pricing now has a
floor or minimum of 35 Growthpoint units for every 100 Fountainhead
units. Accordingly, although the Independent Committee remains
confident regarding the accuracy of its distribution forecasts (upon
which forecasts a component of the proposed price adjustment is
based), it could not be confident, on the basis of the adjustment
mechanics presented to it by Growthpoint, that there would be no or
limited price adjustment. Indeed, it was necessary for the
Independent Committee to factor in the possibility of the Growthpoint
consideration in terms of the Second Growthpoint Proposal, following
adjustment, being lower than that offered pursuant to the Second
Redefine Proposal.
Thus, in assessing the Proposals, the Independent Committee cannot
simply take into account the initial unadjusted consideration
proposed by Growthpoint but, rather, must factor in the probabilities
of a downward adjustment based on the mechanism proposed by
Growthpoint.
To summarise this issue, Unitholders are advised that the unit and
cash consideration proposed by each of Redefine and Growthpoint is
not the only factor that is relevant to pricing.
Due diligence requirements
Having acquired Manco, Redefine indicated to the Independent
Committee that it had no further due diligence requirements. Redefine
also indicated that they would not be in favour of any other party
undertaking a due diligence of Manco records in order to firm up an
offer.
Growthpoint consistently indicated to the Independent Committee that
a due diligence investigation was a non-negotiable aspect of the
Second Growthpoint Proposal. On the basis of subsequent engagement
by the Independent Committee and its advisors with Growthpoint, the
same requirement applies to the Third Growthpoint Proposal. The
draft sale agreement presented by Growthpoint in respect of the
Second Growthpoint Proposal indicated that such due diligence would
need to run for 30 business days and would include access to
competitively sensitive information including, without limitation,
2013/2014 budgets and forecasts, tenant rent rolls, disbursement
statements, forecast capital expenditure and capital commitments and
material contracts. The due diligence would be the basis for its
subjective price adjustment as outlined above.
The Independent Committee has various concerns in relation to
Growthpoint’s requests for due diligence including, amongst other
things:
1. the desirability of making such information available to a
competitor (even with appropriate measures being put in place to
protect competitively sensitive information), particularly given that
it is not unusual for acquisitions of listed entities to be concluded
without a due diligence being conducted, but noting that Redefine,
which is also a competitor of Fountainhead, also has access to such
competitively sensitive information by virtue of its acquisition of
Manco; and
2. the potential damage to Unitholders’ long term value in the event
that a transaction is not concluded with Growthpoint, following its
detailed due diligence of Fountainhead, or as a consequence of price
adjustments arising from such due diligence as described above.
Growthpoint’s continuing request to conclude a due diligence needs to
be evaluated in the light of the above factors to assess how best to
facilitate a due diligence in a manner which sufficiently mitigates
the risks identified above.
Consultation with Unitholders
During the course of its mandate, RMB has interacted extensively with
all major Unitholders as well as with other market commentators. The
substance of these discussions were summarised and communicated to
the Independent Committee.
The Independent Committee is aware that the interests of the
Unitholders are not always aligned to their Fountainhead unit
holdings and that some Unitholders may act in the interests of their
overall portfolio as opposed to acting “purely” as a Unitholder.
A vote in favour of a transaction will be passed if 50% plus 1 of the
Unitholder votes at a meeting are cast in favour of a transaction.
Thus, if Unitholders who own more units in Growthpoint or Redefine
than they do Fountainhead were to vote on a transaction, the votes of
the majority may not be in the interests of all Unitholders. This is
unfortunately a risk inherent in investing in the sector.
There were diverging views from Unitholders as to whether the
Independent Committee should proceed with Redefine or Growthpoint,
however, one factor that most Unitholders appeared to be in agreement
on was that the Independent Committee should choose one alternative
and progress; the maintenance of the status quo was not popular with
most Unitholders.
Threat of litigation
As discussed above, Redefine acquired the entire issued share capital
of the management companies for R660 million. None of Growthpoint’s
Proposals have made provision for any consideration to be paid to the
owner of Manco or Evening Star.
Redefine has made clear in formal communications to the Independent
Committee as well as in the press that, as the owner of Manco, it
would seek to protect its commercial interests by legally challenging
any proposed implementation of a Proposal by Growthpoint. In this
regard, Redefine indicated to the Independent Committee that, in
Redefine’s view:
1. should the Independent Committee choose to consider such a
Proposal, Manco is obliged to consider the impact of the Proposal on
Manco, including the impact on the management fee paid to Manco;
2. Growthpoint’s Proposal (or any similar proposal) lies outside the
administration of Fountainhead and, given its nature, Manco is
obliged not to entertain, agree to or seek to implement such a
proposal; and
3. a transaction for the sale of Fountainhead’s portfolio that did
not compensate Manco would be an inconceivable proposition for
Redefine, as it would be irrational to require Redefine to sacrifice
the value it paid to acquire Manco.
The Independent Committee’s own independent advice from Senior
Counsel is that it is legally competent for it to conclude a
transaction with Growthpoint, on the basis set out in Growthpoint’s
Proposals, provided that the Independent Committee was acting in the
best interests of Unitholders. However, the Independent Committee
was also advised that, merits aside, any legal action by Redefine is
likely to delay the conclusion or implementation of a transaction for
the sale of the property portfolio. Although the precise timing of
such delay is not certain, it is anticipated that it could be as long
as one to two years. The duration of this process depends on, amongst
other things, court availability and the prospect of an appeal
process and, accordingly, it is not practically possible to provide
guidance regarding the duration of the potential delay.
The Independent Committee resolved that the likely delays and costs
associated with the threat of litigation by Redefine constituted a
material execution risk to a transaction with Growthpoint,
notwithstanding that Fountainhead has been advised that it would
likely ultimately be successful in any such litigation. In addition,
the Independent Committee considered that undue delays, and the
uncertainty associated therewith, may reduce the ability of
Fountainhead to enhance the value of its portfolio or indeed maintain
the current value of its portfolio, attract and retain the best
tenants, make strategic acquisitions and disposals, and retain the
best personnel.
Previous transactions
In assessing the Proposals, the Independent Committee has had regard
to previous acquisitions involving listed property unit trusts. The
Independent Committee came to the view that all of these transactions
were distinguishable from the present transaction on a number of
grounds including, without limitation, that a number of them involved
the acquisition of the management company only, and none of them were
concluded in the context of competing bids. Accordingly, the
Independent Committee concluded that none of the previous
transactions created a precedent for the Independent Committee’s
decision regarding what is in the best interests of Unitholders.
Indeed, the circumstances facing the Independent Committee were and
continue to be quite unique, as the manager of a listed property unit
trust governed by CISCA (and falling outside the ambit of the
takeover regulations of the TRP) in receipt of competing bids from
industry competitors, one of which is already its sole shareholder.
Such circumstances have required clear and independent guidance,
careful and detailed analysis and consideration, and a balanced and
unbiased approach focussed on advancing the best interests of
Unitholders.
Managing conflicts of interest
The Independent Committee is aware that certain conflict concerns
have been raised in the press regarding the involvement of Redefine,
as the owner of Manco, the offeror pursuant to the Second Redefine
Proposal and a competitor of Fountainhead.
In this regard, the Independent Committee has drawn a distinction
between the interests of Manco, on the one hand, and the interests of
Redefine as shareholder of Manco and competitor of Fountainhead, on
the other hand. Every action of the Independent Committee in
relation to the Proposals has accordingly been guided by the
interests of Unitholders on the basis of the interests and
responsibilities of Manco (as opposed to Redefine). Although the
Independent Committee recognises that the current situation of
Redefine as owner of Manco, offeror pursuant to the Second Redefine
Proposal and competitor of Fountainhead creates difficulties, it is
not illegal, nor does it create an untenable position. In this
regard, the sale of the management companies was approved by the FSB,
the primary regulator. The Independent Committee has been presented
with a difficult situation and, in dealing with that situation, has
chosen to be guided strictly by the relevant laws, governing
documents (principally, the Trust Deed) and the requirements of the
JSE, all of which point towards acting in the best interests of
Unitholders, and none of which appear to preclude Manco from putting
the Second Redefine Proposal to Unitholders via a circular.
Maintenance of the status quo
The Independent Committee considered, as an alternative to
implementing either Proposal, maintaining the status quo by not
concluding a transaction for the sale of Fountainhead’s portfolio.
The Independent Committee concluded that, given that the assets of
Fountainhead had been ‘put in play’ by the Proposals, a certain
expectation had been created in the minds of Unitholders and the
maintenance of the status quo was no longer in the best interests of
Unitholders. In addition, and as with delays which may arise from
litigation, the Independent Committee considered that maintaining the
status quo may reduce the ability of Fountainhead to enhance the
value of its portfolio, attract and retain the best tenants (due to,
amongst other things, uncertainty as to who will be the new owner of
the property in question), make strategic acquisitions and disposals,
commit to new projects or upgrades, and retain the best personnel.
The difficulties associated with Redefine as owner of Manco, offeror
and the owner and operator of a competing property portfolio, as
highlighted above, strengthened the view of a number of major
Unitholders that maintenance of the status quo would not be optimal.
If the Second Redefine Proposal is put to Unitholders, Redefine will
give Unitholders who vote in favour of the resolutions required to
implement the Proposal an option to dispose of all or some of their
Fountainhead units directly to Redefine for the same number of
consideration units, if the Second Redefine Proposal is not
implemented. Redefine has indicated that this option is, in part, to
address concerns raised by Unitholders regarding a potential lack of
alignment between Redefine, as shareholder of Manco, and the
Unitholders.
Effective poll
The Independent Committee notes that certain Unitholders have
indicated that the Proposals should be put to a poll. Practically
speaking, to date, this has not been possible. Nevertheless, the
Independent Committee would like to ensure that Unitholders are given
the opportunity to decide how to progress. Accordingly, the
Independent Committee had previously resolved that, if it proceeded
first to Unitholders on the basis of the Second Redefine Proposal, it
would include all of the details of Growthpoint’s Proposal in the
circular to Unitholders to ensure that Unitholders are in possession
of all relevant facts. On this basis, Unitholders would be requested
to vote on whether or not they would like to accept the Second
Redefine Proposal. Should the Second Redefine Proposal fail,
Unitholders will be asked to vote on whether they would like the
Independent Committee to proceed with other third party proposals
(including the Third Growthpoint Proposal) knowing that there is a
risk of litigation and that it is uncertain when such third party
proposal would be effective.
The Independent Committee is engaging with Redefine and Growthpoint
in order to put in place arrangements that will enable Unitholders to
provide the Independent Committee with a mandate to proceed on this
basis in full knowledge of the facts.
Conclusion
Following receipt of the Second Redefine Proposal, and having
assessed the above factors against the requirement to act in the best
interests of Unitholders, the Independent Committee resolved to
engage first with Redefine on an exclusive basis in order to bring
such transaction to Unitholders and to attain a level of certainty
for both Unitholders and Fountainhead itself.
Obviously, the receipt of the Third Growthpoint Proposal requires a
fresh assessment of all of these issues in light of Growthpoint’s
improved pricing. On the face of it, certain of the challenges
highlighted above (particularly, Growthpoint’s proposed subjective
price adjustment mechanisms and requirement for due diligence and
Redefine’s threat of litigation) remain. However, Growthpoint’s
revised pricing may nonetheless offer opportunities that could
advance the best interests of Unitholders.
These matters will need to be carefully considered in a detailed,
balanced and unbiased manner, consistent with the past conduct of the
Independent Committee. The Independent Committee has not yet had a
proper opportunity to conclude such process (and was, until 22
February 2013, precluded from engaging with Growthpoint), but
recognises the need to bring matters to a head as soon as possible.
In this regard, the Independent Committee has already held meetings
with both Redefine and Growthpoint management in order to progress
the Proposals.
As a result of the actions of the Independent Committee acting in the
best interests of Unitholders, it should be noted that, on the basis
of pricing at the close of business on 26 February 2013, the total
value of the listed consideration has increased from c.R9.1bn (in the
First Redefine Proposal) to c.R10.9bn (at the top end of Third
Growthpoint Proposal); an increase of c.R1.8bn or R1.61 per unit.
The Independent Committee and its advisors will be meeting with major
Unitholders to discuss the issues set out in this letter. While this
letter is directed at all Unitholders, it is particularly important
for smaller Unitholders to understand the work that has been done by
the Independent Committee in order to get to the current position as,
unfortunately, the Independent Committee will not be able to meet
with approximately 8000 Unitholders at this stage.
The Independent Committee is working towards finalising a balanced
process that puts all relevant information in front of Unitholders as
soon as possible, and allows Unitholders to vote in a manner that
directs the way forward. This, in turn, should address the concerns
associated with maintaining the status quo, as highlighted above.
The Independent Committee will announce final details of this process
as soon as possible but hopes that, in the interim, the detail
provided above provides assurance to Unitholders that the Independent
Committee has acted, and will continue to act, in the best interests
of Unitholders.
Yours sincerely
The Independent Committee of the Board of Fountainhead Property Trust
Management Limited
Per: Michael Kirchmann (Chairman)”
Sandton
28 February 2013
Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal Advisor
Bowman Gilfillan Inc.
Independent Expert
Questco Proprietary Limited
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