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Update on Corporate Action and Renewal of Cautionary Announcement
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
("Fountainhead”)
Update on corporate action and renewal of cautionary announcement
1. Background
Unitholders of Fountainhead (“Unitholders”) are referred to:
- the Fountainhead cautionary announcement released on SENS on 1 October 2012
relating to the unsolicited proposal received by Fountainhead Property Trust
Management Limited (“Fountainhead Manco”) from Redefine Properties Limited
(“Redefine”) to acquire the majority of the properties in Fountainhead’s portfolio in return
for a combination of Redefine and Hyprop Investments Limited (“Hyprop”) units (the
“Original Redefine Proposal”);
- the Fountainhead cautionary announcement released on SENS on 24 October 2012
relating to the unsolicited proposal received by Fountainhead Manco from Growthpoint
Properties Limited (“Growthpoint”) to acquire all of the properties in Fountainhead’s
portfolio in return for a combination of cash and Growthpoint units (the “Original
Growthpoint Proposal”); and
- the Fountainhead cautionary announcement released on SENS on 15 November 2012
relating to the price adjustment mechanics applicable to the Original Growthpoint
Proposal (the Original Growthpoint Proposal, as clarified by the price adjustment
mechanics, referred to as the “Growthpoint Proposal”).
The independent committee of the board of directors of Fountainhead Manco (“Independent
Committee”) has engaged with Redefine and Growthpoint to clarify the terms of the Original
Redefine Proposal and the Growthpoint Proposal (jointly “the Proposals”) as there are legal,
regulatory, practical and timing issues associated with the Proposals.
The purpose of this announcement is to update Unitholders in respect of revisions to the
Original Redefine Proposal, proposed next steps in relation to the Proposals and to renew
the cautionary announcement.
2. Summary of the Original Redefine Proposal
Unitholders are reminded of the salient terms and conditions of the Original Redefine
Proposal which were:
- Redefine would acquire from Fountainhead all of the properties within the Fountainhead
portfolio other than Orion Place (latest valuation was R3.8m), Gail Industrial Park (latest
valuation was R3.5m) and Precision House (latest valuation was R1.7m).
- In consideration, Redefine would deliver 726,693,593 Redefine units and 34,881,292
Hyprop units to Unitholders, which equates to 62.5 Redefine units and 3 Hyprop units
for every 100 Fountainhead units held.
- The Redefine units would be issued ex-entitlement to a special interest distribution that
would be declared for the period 1 September 2012 to the effective date. The Hyprop
units would be entitled to any accrued income due at the time of distribution to
Unitholders.
- All interest bearing debt as at the effective date would be assumed or settled by
Redefine. Redefine indicated a debt balance of R2,696,874,750 as at the date of the
Original Redefine Proposal and stated that no further increase in this balance would be
permitted.
- Fountainhead’s working capital would be excluded from the transaction and would be
available for distribution to Unitholders at the conclusion of the transaction.
- Fountainhead would retain its listing on the JSE Limited (“JSE”) with the intention of it
becoming a new portfolio as part of a broader black economic empowerment strategy
for Redefine.
- Redefine referenced the six properties in the Fountainhead portfolio that are subject to
pre-emptive agreements and assigned a monetary value to each such property. The full
sale proceeds of any such properties acquired by pre-emptive rights holders before the
effective date would become payable to Redefine.
3. Summary of the Growthpoint Proposal
Unitholders are reminded of the salient terms and conditions of the Growthpoint Proposal as
follows:
- Growthpoint would acquire from Fountainhead all of the properties within the
Fountainhead portfolio.
- The consideration would consist of:
- such number of linked Growthpoint units as equates to 35 Growthpoint linked units
for every 100 Fountainhead participatory units in existence at the effective date; and
- a cash portion to be utilised to settle Fountainhead’s outstanding interest bearing
debt as at the effective date.
- Subsequent to the effective date:
- Growthpoint consideration units and the net working capital of Fountainhead,
including its distributable income up to the effective date, would be distributed to the
Unitholders;
- the listing of Fountainhead on the JSE would be terminated; and
- Fountainhead would be wound up.
- Growthpoint consideration units would be issued ex-entitlement to a special interest
distribution that would be declared for the period from the previous Growthpoint reported
interim period or financial year end, whichever is applicable, to the effective date, to
ensure that both Growthpoint linked units and Fountainhead units would be ex any
distribution on the effective date.
- The Growthpoint Proposal would be subject to a due diligence investigation (“Due
Diligence Investigation”) and a price adjustment mechanism, as follows:
- to the extent that Growthpoint determines in the Due Diligence Investigation that the
sustainable income distribution per Fountainhead unit for the year ending 30
September 2013 is likely to be less than the published forecast income distribution
per Fountainhead unit of 55.83 cents, Growthpoint would adjust the offer ratio
downwards by 0.313 Growthpoint units per 100 Fountainhead units for every 0.5
cents by which Growthpoint’s determination of the likely income distribution per
Fountainhead unit is less than the forecast;
- to the extent that Growthpoint determines in the Due Diligence Investigation that the
income distribution per Fountainhead unit for the year ending 30 September 2014 is
likely to be less than the published forecast income distribution per Fountainhead
unit of 59.85 cents, for reasons arising subsequent to the year ending 30
September 2013, Growthpoint would adjust the offer ratio downwards by 0.292
Growthpoint units per 100 Fountainhead units for every 0.5 cents by which
Growthpoint’s determination of the likely income distribution per Fountainhead unit
is less than the forecast; and
- to the extent concerns are identified in the Due Diligence Investigation which
Growthpoint determines are likely to have an impact on value of greater than 5%
(“NAV Difference”) of the reported tangible net asset value of R8,063 million as at
30 September 2012, Growthpoint would adjust the offer ratio downwards by 0.313
Growthpoint units per 100 Fountainhead units for every R92 million of the total
Rand value of the NAV Difference.
4. Revisions to the Original Redefine Proposal
Redefine has approached the Fountainhead Manco with certain proposed revisions to the
Original Redefine Proposal (“Revised Redefine Proposal”) as follows:
- Redefine has increased the consideration from the delivery of 726,693,593 Redefine
units and 34,881,292 Hyprop units to Unitholders, which equates to 62.5 Redefine units
and 3 Hyprop units for every 100 Fountainhead units held, to the delivery of 651,117,459
Redefine units and 52,321,939 Hyprop units to Unitholders, which equates to 56
Redefine units and 4.5 Hyprop units for every 100 Fountainhead units held. Based on
the closing prices on Wednesday, 12 December 2012, and market consensus forecast
distributions per unit, the value of the Revised Redefine Proposal consideration
represents an estimated increase of approximately R529 million over the Original
Redefine Proposal.
- Redefine has indicated that, although it prefers to retain Fountainhead as a listed
property unit trust, if this is not implementable, Fountainhead will be wound up and the
three properties excluded from the Original Redefine Proposal will be disposed of to, in
exchange for shares in, a newly established black economic empowerment entity that
will be listed as a corporate real estate investment trust, which shares will be distributed
to Unitholders pursuant to the proposed winding up.
- As with the Original Redefine Proposal, the Revised Redefine Proposal contemplates the
acquisition of the properties in the Fountainhead portfolio, but also contemplates that, if
the Revised Redefine Proposal is not implemented for any reason, Unitholders who vote
in favour of the Revised Redefine Proposal will have the right to elect to dispose of their
units in Fountainhead in exchange for units in Redefine in the same ratio as the offer for
the properties. In other words, if the Revised Redefine Proposal is not implemented for
any reason, the properties in Fountainhead’s portfolio would be retained by
Fountainhead, but Unitholders will have the right to elect to exchange their units in
Fountainhead for units in Redefine and Hyprop. Redefine would acquire the
Fountainhead units so exchanged and would therefore become a Unitholder. Redefine
has indicated that this revision is, in part, to address concerns raised by Unitholders
regarding a potential lack of alignment of interests between Redefine, as shareholder of
Fountainhead Manco, and the Unitholders.
5. Next steps
Neither Proposal can be implemented without, amongst other things, the approval of the
transaction by the majority of Unitholders, pursuant to a circular to Unitholders, and the
approval of certain amendments to the trust deed of Fountainhead by the majority of
Unitholders pursuant to a ballot process (provided that such amendments to the trust deed
will have been approved by the Financial Services Board (“FSB”)). Each Proposal also
requires the approval of the proposer’s own unitholders.
However, before either Proposal can be put to Unitholders, it must be formalised by way of a
written sale agreement concluded with Fountainhead. In this regard, the Independent
Committee does not believe that it is commercially possible to concurrently conclude
separate written agreements with each of Redefine and Growthpoint in respect of their
respective Proposals.
The Independent Committee has concluded that, taking all relevant considerations into
account, it is in the best interests of Unitholders for it to engage with Redefine with a view to
concluding a written sale agreement in respect of the Revised Redefine Proposal, which, if
concluded, can then be put to Unitholders for approval. During the period of that
engagement, the Independent Committee does not believe that it is feasible to continue to
progress the Growthpoint Proposal or any other third party proposal. The Independent
Committee has accordingly undertaken to engage exclusively with Redefine in respect of the
sale of Fountainhead’s assets. This exclusively will expire if a written sale agreement has
not been concluded by 31 January 2012. If a written sale agreement is concluded between
Fountainhead and Redefine, it will contain an extension of the exclusivity until immediately
after the Unitholders vote on the Revised Redefine Proposal, or on termination of the written
sale agreement, whichever is the earlier.
In coming to this conclusion, the Independent Committee has been guided by, amongst
other things, the consideration being proposed under each Proposal, including Growthpoint’s
proposed price adjustments, Growthpoint’s requirement for a detailed due diligence, the
execution risks associated with each of the Proposals (including, amongst other things, risks
associated with any threat of litigation and possible delays in consummating a transaction as
a result of such litigation), the cost to Unitholders of delays and the costs of implementation
of the respective Proposals, and the resultant impact of all of these factors on the ongoing
business of Fountainhead.
The Independent Committee has been advised that, if it is in the best interests of
Unitholders, it is legally permissible for it to engage with and conclude a transaction with
Growthpoint or any other third party for the sale of all or the majority of the properties in
Fountainhead’s portfolio. Accordingly, the Independent Committee is considering, as part of
the circular, seeking guidance from Unitholders as to whether or not they would like the
Independent Committee to proceed with the Growthpoint Proposal or any other third party
proposal, in the event that the Revised Redefine Proposal is not approved. The Independent
Committee believes that seeking such guidance may be appropriate in the light of the factors
referred to in the preceding paragraph that relate to such a proposal.
The Independent Committee has appointed Questco Proprietary Limited to provide it with an
independent opinion regarding the fairness of the Revised Redefine Proposal as required in
terms of the Listings Requirements of the JSE. The substance of this opinion will be
communicated to Unitholders in the circular to Unitholders relating to the proposed
transaction.
Once a written sale agreement has been concluded, a full terms announcement will be
released on SENS and in the press.
6. Further cautionary announcement
No written agreement has been concluded with Redefine in relation to the Revised Redefine
Proposal and changes could arise from, amongst other things, regulatory requirements.
Accordingly, Unitholders are advised to continue to exercise caution when trading in their
Fountainhead units until a further announcement is made.
13 December 2012
Merchant bank and transaction sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal Advisor
Bowman Gilfillan Inc.
Independent Expert
Questco Proprietary Limited
Date: 13/12/2012 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
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