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EMI /FSP - Emira/Freestone - Offer By Emira And Withdrawal Of Cautionary
Emira Property Fund
A property fund created under the Emira Property Scheme, registered in terms of
the Collective Investment Schemes Control Act
Share Code: EMI
ISIN : ZAE000050712
("Emira")
Freestone Property Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2001/011887/06)
Share code: FSP
ISIN: ZAE000060299
("Freestone")
OFFER BY EMIRA TO ACQUIRE ALL THE ISSUED LINKED UNITS OF FREESTONE AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Introduction
Further to the Emira and Freestone cautionary announcements dated 15
November 2006, Emira participatory interest ("PI") holders and Freestone
linked unitholders are advised that Strategic Real Estate Managers
(Proprietary) Limited ("STREM"), the manager of Emira, has submitted to the
board of directors of Freestone ("the Freestone Board"), Emira`s firm
intention to make an offer to Freestone linked unitholders, to acquire all
the issued linked units of Freestone ("the offer" or "the acquisition").
2. Mechanism of the offer
The mechanism of the offer will be by way of a scheme of arrangement
("scheme") in terms of section 311 of the Companies Act, 1973 ("the Act"),
to be proposed by Emira between Freestone and its linked unitholders
("scheme participants"). Upon implementation of the scheme, an application
will be made to the JSE Limited ("JSE") to terminate the listing of all the
issued linked units of Freestone on the JSE.
3. Rationale
Emira is a Collective Investment Scheme in Property and is listed on the
JSE in the "Real Estate Investment Trusts" sector. Emira invests in, holds
and develops commercial, industrial and retail properties. Emira`s current
portfolio comprises 88 properties valued at approximately R3.5 billion.
Freestone is a property loan stock company and is listed on the JSE in the
"Real Estate - Real Estate Holdings & Development" sector. Freestone owns a
portfolio of commercial, retail and industrial properties across South
Africa, comprising 81 properties valued at approximately R1.6 billion.
The acquisition will result in Emira owning 100% of the Freestone linked
units and will therefore constitute Freestone as a wholly-owned subsidiary
of Emira.
Both Emira PI holders and Freestone linked unitholders will benefit from:
- an increased market capitalisation against a background of a general
preference for larger more liquid funds as per international and local
trends. The combined fund will become the fifth-largest listed
property fund with a market capitalisation of approximately R5
billion;
- exposure to a more diversified portfolio of properties comprising
approximately 170 commercial, industrial and retail properties;
- efficiencies arising from a more focused and enhanced infrastructure
in the fund management of the combined Emira and Freestone portfolio;
and
- cost savings through economies of scale.
Emira has been intending to raise debt funding through the capital markets.
As a result of the acquisition, Emira PI holders will be able to take
advantage of the efficient debt funding opportunities in the merged fund
using Freestone`s existing commercial mortgage backed securitisation
platform.
Freestone linked unitholders will be able to benefit from the close
relationship that Emira has with RMB Properties and Momentum Group Limited
("Momentum"), that has recently seen Emira purchase R850 million worth of
existing and newly developed properties. Freestone has also been committed
to introducing empowerment partners into the company. Following the
acquisition, Freestone linked unit holders will benefit from an existing
BEE structure within Emira.
4. The scheme consideration
The scheme consideration will be 0.9 Emira PIs per Freestone linked unit,
rounded to the nearest whole number of Emira PIs (the "consideration
interest") provided that a scheme participant shall be entitled to elect
that, the scheme consideration in respect of up to 20% of such scheme
participant`s Freestone linked units be discharged in cash at R8.20 per
Freestone linked unit (the "cash consideration").
Scheme participants may apply to receive the cash consideration in respect
of more than 20% of their Freestone linked units ("the increased cash
consideration"). The increased cash consideration will only be
accommodated on a pro-rata basis if and to the extent that other scheme
participants elect to receive the consideration interest in respect of more
than 80% of their Freestone linked units and to the extent that STREM
recommends the payment of the increased cash consideration on a pro rata
basis to those scheme participants wishing to receive the increased cash
consideration. The maximum cash consideration payable under the offer will
thus equate to R223 380 948. For the sake of clarity, to the extent that
the election in terms of the increased cash consideration is not
accommodated, the balance of the scheme consideration will be settled by
way of the consideration interest.
In the absence of an election, scheme participants will be deemed to have
elected to receive the consideration interest (as opposed to the cash
consideration) in discharge of the entire scheme consideration.
The consideration interest represents an 8.1% premium based on the 30-day
volume weighted average prices of Freestone linked units and Emira PIs to
Tuesday, 14 November 2006, being the date before the first cautionary
regarding the acquisition was announced.
The offer is made on the basis that:
- immediately prior to the date of settling the scheme consideration
with Freestone linked unitholders ("operative date of the scheme"),
the entire issued capital of Freestone will comprise 136 207 895
linked units made up of one ordinary share of 5 cents and five
unsecured variable rate debentures of 180 cents each;
- Emira and Freestone will pay interim distributions ("interim
distributions") to 31 December 2006 (payable in March 2007) prior to
the merger of the two;
- a special distribution which will include the unpaid amounts available
for distribution that will have accrued up to the last day of the
month preceding the month in which the last of the conditions
precedent is fulfilled will be payable by Emira and Freestone
("special distributions"). Emira will pay its special distribution to
PI holders registered as such on the date to be announced in respect
of the special distribution. Freestone will pay its special
distribution to linked unitholders in the register ranking for the
receipt of the scheme consideration. The special distributions will
ensure that both the Emira PIs and Freestone linked units will be ex-
distribution at the beginning of the month in which the scheme becomes
operative; and
- no distribution other than the interim distributions and special
distributions will be declared between the date of the offer letter,
being 14 December 2006 and the operative date of the scheme.
5. Cash confirmation
In terms of Rule 2.3.2 (b) and Rule 21.7 of the Securities Regulation Panel
("SRP") Code, Rand Merchant Bank, a division of FirstRand Bank Limited has
provided a cash confirmation to the SRP confirming that Emira has
sufficient cash resources available to satisfy the maximum cash
consideration payable in terms of the offer.
6. Pro forma financial effects of the acquisition on Emira PI holders
The unaudited pro forma financial effects of the acquisition are presented
below for illustrative purposes only and because of their pro forma nature
may not give a fair reflection of Emira`s financial results and position
after the acquisition.
Emira and Freestone believe that earnings and headline earnings per PI are
irrelevant for listed property fund investors and that distributions per PI
are a more appropriate measure of performance. Moreover, historic measures
of performance are not an appropriate indication of the future performance
of the combined fund. It is expected that the impact of the acquisition on
Emira`s forward distributions will be neutral.
Consideration interest only offer
(Cents) Before After Change
(Note 1) (Note 2) (%)
Distribution per PI 74.50 72.49 -2.7
(Note 3)
Earnings per PI (Note 3) 316.68 314.67 -0.6
Headline earnings per PI 85.67 88.99 3.9
(Note 3)
NAV and NTAV per PI 865.77 898.75 3.8
(Note 4)
Weighted average PIs in issue 286,829 408,792
(`000)
286,829 409,416
PIs in issue (`000)
Notes:
1 Based on the audited financial statements of Emira for the year ended
30 June 2006.
2. Reflects the effects of the acquisition on the assumption that
Freestone linked unitholders elect the consideration interest only.
3. Earnings, headline earnings and distribution effects are based on the
following assumptions:
a) the acquisition was effective 1 July 2005; and
b) the Freestone debenture interest and the fair value adjustment on
the Freestone debentures were added back.
4. NAV and NTAV effects are based on the following assumptions:
a) the acquisition was accepted effective 30 June 2006;
b) the fair value of the consideration interest of R9,80 was
determined on 13 December 2006, being the date before the offer
was submitted to the Freestone Board; and
c) the costs of the acquisition of R5 million have been capitalised
to participatory interest holders` capital.
5. A purchase price allocation exercise will need to be performed at the
effective date of the acquisition in terms of IFRS3: Business
Combinations. For purposes of the pro forma financial effects, the
difference between the carrying value of the assets and liabilities
acquired has been allocated to investment properties.
Consideration interest and cash offer
(Cents) Before After Change
(Note 1) (Note 2) (%)
Distribution per PI 74.50 71.30 -4.3
(Note 3)
Earnings per PI (Note 3) 316.68 328.40 3.7
Headline earnings per PI 85.67 88.71 3.6
(Note 3)
NAV and NTAV per PI 865.77 893.57 3.2
(Note 4)
Weighted average PIs in issue 286,829 384,898
(`000)
286,829 384,898
PIs in issue (`000)
Notes:
1. Based on the audited financial statements of Emira for the year ended
30 June 2006.
2. Reflects the effects of the acquisition on the assumption that
Freestone linked unitholders elect the cash consideration in respect
of 20% of their Freestone linked units.
3. Earnings, headline earnings and distribution effects are based on the
following assumptions:
a) the acquisition was effective 1 July 2005;
b) the cash consideration of R223,4 million was financed by long-
term borrowings, incurring interest at an average interest rate
of 10% pa; and
c) the Freestone debenture interest and the fair value adjustment on
the Freestone debentures were added back.
4. NAV and NTAV effects are based on the following assumptions:
a) the acquisition was effective 30 June 2006;
b) the fair value of the consideration interest of R9,80 was
determined on 13 December 2006, being the date before the offer
was submitted to the Freestone Board;
c) the cash consideration of R223,4 million was financed by long-
term borrowings; and
d) the costs of the acquisition of R5 million have been capitalised
to participatory interest holders` capital.
5. A purchase price allocation exercise will need to be performed at the
effective date of the acquisition in terms of IFRS3: Business
Combinations. For purposes of the pro forma financial effects, the
difference between the carrying value of the assets and liabilities
acquired has been allocated to investment properties.
7. Pro forma financial effects of the offer on Freestone linked unitholders
The unaudited pro forma financial effects of the offer are presented below
for illustrative purposes only and because of their pro forma nature may
not give a fair reflection of all of the scheme participants` financial
effects.
Consideration interest only offer
(Cents) After Change
Before (Note 1) (%)
Attributable market value
- Market price (Note 2) 830 882 6.3
- 30-day weighted average 826 882 6.8
price (Note 3)
- 30-day weighted average 774 837 8.1
price (Note 4)
Notes:
1. Reflects the effects of the offer on the assumption that Freestone
linked unitholders elect the consideration interest only.
2. Based on the closing prices of Freestone linked units and Emira PIs on
13 December 2006, being the date before the offer was submitted to the
Freestone Board.
3. Based on the 30-day volume weighted average prices of Freestone linked
units and Emira PIs to 13 December 2006, being the date before the
offer was submitted to the Freestone Board.
4. Based on the 30-day volume weighted average prices of Freestone linked
units and Emira PIs to 14 November 2006, being the date before the
first cautionary regarding the offer was announced.
Consideration interest and cash offer
(Cents) After Change
Before (Note 1) (%)
Attributable market value
- Market price (Note 2) 830 873 5.2
- 30-day weighted average 826 873 5.7
price (Note 3)
- 30-day weighted average 774 828 7.0
price (Note 4)
Notes:
1. Reflects the effects of the offer on the assumption that Freestone
linked unitholders elect the cash consideration in respect of 20% of
their Freestone linked units.
2. Based on the closing prices of Freestone linked units and Emira PIs on
13 December 2006, being the date before the offer was submitted to the
Freestone Board.
3. Based on the 30-day volume weighted average prices of Freestone linked
units and Emira PIs to 13 December 2006, being the date before the
offer was submitted to the Freestone Board.
4. Based on the 30-day volume weighted average prices of Freestone linked
units and Emira PIs to 14 November 2006, being the date before the
first cautionary regarding the offer was announced.
8. Conditions precedent
The scheme will be subject to (and will become operative upon) the
fulfilment, or where applicable waiver, of the following conditions
precedent:
8.1 the completion of a due diligence exercise by Freestone and Emira
before or on 10 January 2007;
8.2 the final terms of the acquisition having been approved, before or on
10 January 2007, by ABSA Bank Limited, the party appointed in terms of
the Collective Investment Schemes Control Act, No. 45 of 2002, to act
as trustee of Emira`s assets and to ensure compliance by STREM with
the Scheme Deed;
8.3 the acquisition having been approved by a simple majority of PI
holders of Emira, other than Momentum and its associates at a general
meeting of Emira PI holders before or on 31 March 2007 or such other
date as may be agreed between Freestone and Emira in writing;
8.4 the scheme having been approved by a majority representing three-
fourths of the votes exercisable by the scheme members present and
voting, either in person or by proxy, at the scheme meeting before or
on 31 March 2007 or such other date as may be agreed between Freestone
and Emira in writing;
8.5 receipt, before or on 30 April 2007 or such other date as may be
agreed between Freestone and Emira in writing, of regulatory
approvals, to the extent required in law, in relation to the
acquisition (in each case either unconditionally or subject to
conditions reasonably acceptable to the persons on whom such
conditions are imposed):
(i) the JSE;
(ii) the SRP;
(iii)the Financial Services Board; and
(iv) the competition authorities;
8.6 the relevant Court having sanctioned the scheme before or on 30 April
2007 or such other date as may be agreed between Freestone and Emira
in writing; and
8.7 a certified copy of the order of Court sanctioning the scheme having
been registered by the Registrar in terms of the Act before or on the
date 7 business days from the date on which the relevant Court
sanctions the scheme.
9. Opinion and recommendations
The board of directors of STREM ("the STREM Board") will appoint an
independent expert to consider the terms and conditions of the acquisition
as they relate to Emira and the Emira PI holders. The opinions and
recommendations of the independent expert and the STREM Board will be set
out in a circular that will be sent to Emira PI holders.
The Freestone Board has appointed independent advisors to assist it in
considering the terms of the offer and to provide it with the external
advice required in terms of the SRP Code. The opinions and recommendations
of the independent advisors and the Freestone Board will be set out in a
circular that will be sent to Freestone linked unitholders.
10 Further documentation
Circulars containing full details of the acquisition/offer will be posted
to Emira PI holders and Freestone linked unitholders in due course.
11 Withdrawal of cautionary announcement
Emira PI holders and Freestone linked unitholders are advised that the
cautionary announcements referred to in paragraph 1 above are hereby
withdrawn.
Johannesburg
18 December 2006
Financial advisor and joint sponsor to Emira
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Lead sponsor to Emira
PricewaterhouseCoopers Corporate Finance (Proprietary) Limited
Corporate advisor, legal advisor and sponsor to Freestone
Java Capital (Proprietary) Limited
Date: 18/12/2006 11:02:16 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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