Wrap Text
Update On Corporate Action And Withdrawal 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 WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
Introduction
Unitholders of Fountainhead (“Unitholders”) are referred to:
- The unsolicited proposals to acquire the underlying assets of
Fountainhead received from each of Redefine Properties Limited
(“Redefine”) and Growthpoint Properties Limited (“Growthpoint”)
(the “Redefine Proposal” and the “Growthpoint Proposal”
respectively, and together the “Proposals”).
- The SENS announcement released by Redefine on 11 March 2013
noting its decision to withdraw the Redefine Proposal (the
“Withdrawal”) and advising that Redefine (through its wholly
owned subsidiary Redefine Retail Proprietary Limited) had
acquired approximately 18% of the Fountainhead units as at 11
March 2013, and that Redefine intended, on an accelerated basis,
to offer to acquire up to a further 15% of the Fountainhead
units on the terms set out in the announcement.
- The SENS announcement released by Redefine on 12 March 2013
noting that Redefine had elected to accommodate the demand for
its offer by acquiring more Fountainhead units than initially
anticipated, increasing Redefine’s Fountainhead unitholding to
“just under 40%”.
- The SENS announcement released by Redefine on 15 March 2013
confirming that Redefine had acquired 38.9% of the Fountainhead
units in issue from Unitholders for an aggregate offer
consideration of R4.239 billion consisting of Hyprop Investments
Limited linked units, Redefine linked units and cash.
Furthermore, Unitholders are advised that the Chairman of the
board of directors (“Board”) of Fountainhead Property Trust
Management Limited (“Fountainhead Manco”) received a letter,
dated 25 March 2013, from Redefine advising that Redefine has
acquired a further 6.6% of the Fountainhead units, increasing
its Fountainhead unitholding to 45.6%. (Redefine’s acquisition
of Fountainhead units is hereinafter referred to as the “Stake
Building”).
The independent committee of the Board which was constituted to
consider the Proposals (“Independent Committee”) has set out
below an update on recent developments in relation to the
possible corporate actions and the decision of the Independent
Committee arising from those developments.
Relevant recent developments
The Independent Committee was not aware of the Withdrawal and
Stake Building until immediately prior to Redefine’s
announcement in relation thereto on 11 March 2013. Up until
that point, the Independent Committee had been engaging with
Redefine in relation to a process, proposed by Redefine, which
would allow the Independent Committee to put the Redefine
Proposal before Unitholders and simultaneously progress its
engagement with Growthpoint in relation to the Growthpoint
Proposal without interruption by Redefine by way of its
threatened litigation. In this regard, on 27 February 2013,
Redefine’s advisors circulated a ‘process letter’ to the
advisors of the Independent Committee, which contemplated
converting its sale agreement into a unilateral offer by
Redefine to acquire the assets of Fountainhead, which would be
capable of acceptance for a period of time following Unitholder
approval of the Redefine Proposal, if such approval was
forthcoming. The principal reason for this change was the
reluctance of the trustee of Fountainhead to sign the sale
agreement with Redefine. At the same time, Redefine proposed to
agree in the process letter that it would “not take legal steps
to block that engagement” with Growthpoint if it was progressed
at the same time as the Redefine Proposal, and provided that the
Independent Committee did not sign a sale agreement with
Growthpoint until after the Redefine Proposal had been put to
Unitholders. Redefine, notwithstanding these proposals,
maintained its position that (i) the Growthpoint Proposal (or
any similar proposal) lies outside of the administration of
Fountainhead and that, given its nature, the Board is obliged
not to entertain, agree to or seek to implement such a proposal,
and (ii) that Redefine is in a position to block the Growthpoint
Proposal or any similar proposal. On 7 March 2013, Redefine’s
advisors circulated the revised sale agreement in the form of a
unilateral offer from Redefine. On 11 March 2013, Redefine
announced the Withdrawal and Stake Building.
On the strength of the process letter and unilateral offer, as
proposed by Redefine, the Independent Committee was
simultaneously engaging with Growthpoint with a view to putting
the Growthpoint Proposal to Unitholders as soon as possible
after, or on the same day of, the Unitholder vote in relation to
the Redefine Proposal. This would have involved Growthpoint
also putting a unilateral offer to Fountainhead which would be
capable of acceptance for a period following the Unitholder
approval of the Growthpoint Proposal, if such approval was
forthcoming (given, amongst other things, that Redefine was only
prepared to allow the Independent Committee to progress the
Growthpoint Proposal without impediment from Redefine if the
Independent Committee agreed not to sign a sale agreement with
Growthpoint until after the Redefine Proposal had been put to
Unitholders). The engagement with Growthpoint focussed on
possible timetables as well as previous issues identified by the
Independent Committee in relation to the Growthpoint Proposal,
being principally the proposed price adjustment mechanics and
due diligence requirements.
The Independent Committee was of the view that the process being
pursued as described above was in the best interests of
Unitholders, and the best possible outcome given the difficult
circumstances facing the Independent Committee, as well as
constituting equal treatment of Redefine and Growthpoint in that
it would result in each Proposal being put to Unitholders as
soon as possible. The Independent Committee was also of the
view that such a competitive process created the most effective
mechanism for ensuring price maximisation for Unitholders. In
this regard, the Independent Committee disagrees with the
sentiment created by Redefine’s statement in its Withdrawal
announcement that the “formulation of the Growthpoint offer, and
the manner in which it has been dealt with by the independent
committee of the board and by the Fountainhead trustee, has
caused protracted delays and uncertainty” insofar as it relates
to the Independent Committee. The Independent Committee has
been actively and diligently engaging in a detailed, unbiased
and balanced manner with Redefine, Growthpoint and other
stakeholders, on the basis of, amongst other things,
representations and proposals of both Redefine and Growthpoint,
which the Independent Committee believed was in the best
interests of Unitholders.
The Independent Committee has been mindful of the fact that not
all Unitholders have been able to participate in the Stake
Building exercise and that, unlike what would be the position if
Fountainhead was a company, they do not have the benefit of
normal takeover protections as set out in the rules of the
Takeover Regulation Panel. These protections would include,
amongst other things, disclosure requirements imposed on
Redefine as stake builder (if Fountainhead was a company), to
have informed Fountainhead of each incremental 5% increase in
its holding, and the requirement to make a mandatory offer to
remaining shareholders once the 35% threshold had been reached
by Redefine. These takeover protections do not apply to
Fountainhead, as a collective investment scheme in property
regulated by the Collective Investment Schemes Control Act, 45
of 2002. In addition, the Independent Committee was mindful
that the Proposals were both value accretive for Unitholders.
It is, accordingly, unsurprising that the remaining Unitholders
that have not participated in the Stake Building and with whom
the Independent Committee have engaged subsequent to the Stake
Building have indicated that they still wish that a Proposal be
put before Unitholders (the only remaining Proposal being the
Growthpoint Proposal).
Following Redefine’s Withdrawal, the Independent Committee
determined that it would be prudent for it to engage with the
Financial Services Board (“FSB”) before progressing the matter
further. The Independent Committee understands that Redefine
and Growthpoint have also met with the FSB subsequent to
Redefine’s Withdrawal. At its meeting with the FSB on 19 March
2013, the Independent Committee and its advisors conveyed to the
FSB, amongst other things, the recent developments and
considerations outlined above. The FSB’s response to this
engagement, in a letter to the Chairman of the Board dated 25
March 2013, was solely “to impress upon the Board and the
Independent Committee the importance of expediting its efforts
in reaching a decision regarding the transaction, and to the
extent necessary, to step up engagement with relevant
stakeholders”.
In correspondence addressed to the Board and Independent
Committee subsequent to Redefine’s Withdrawal, Redefine has,
amongst other things, reiterated its position as described above
that (i) the Growthpoint Proposal (or any similar proposal) lies
outside of the administration of Fountainhead and that, given
its nature, the Board is obliged not to entertain, agree to or
seek to implement such a proposal, and (ii) that Redefine is in
a position to block the Growthpoint Proposal or any similar
proposal. In addition, Redefine has indicated that it will vote
against any resolutions or ballot of Unitholders required to
approve the Growthpoint Proposal.
Termination of engagement
Against the backdrop set out above, the Independent Committee
has resolved at this time to terminate its engagement with
Growthpoint in relation to the Growthpoint Proposal.
The principal reason for this decision is that Redefine has
indicated that it will vote against any resolutions or ballot of
Unitholders to approve the Growthpoint Proposal. The
Independent Committee has been advised that Redefine’s stake of
45.6% constitutes an effective blocking stake in respect of the
Growthpoint Proposal unless (i) Redefine is precluded from
voting its units in respect of a resolution to approve the
Growthpoint Proposal, and (ii) the Growthpoint Proposal can be
implemented without the need for a ballot to amend the trust
deed of Fountainhead (“Trust Deed”). The Independent Committee
has also been advised that there is no clear basis on which
Redefine is precluded from voting its Fountainhead units on a
resolution to approve the Growthpoint Proposal or a ballot to
amend the Trust Deed, although, in relation to the Unitholder
vote only (and not the ballot) the JSE does have discretion,
within the context of related party transactions, to preclude
Redefine from voting. The Independent Committee has been
informed by Growthpoint that it has engaged the JSE regarding
the ability of Redefine to vote its units at a meeting of
Unitholders to consider an offer from Growthpoint to acquire all
of the assets of Fountainhead on the basis set out in the
Growthpoint Proposal. Absent a ruling from the JSE in this
regard and sufficient comfort regarding Growthpoint’s ability to
implement the Growthpoint Proposal without amendments to the
Trust Deed, the Independent Committee does not believe that it
is in the interests of Unitholders to progress the Growthpoint
Proposal at this time given that, in all likelihood, such
Proposal will not be approved.
In addition, the Independent Committee notes that, in its letter
to Unitholders dated 28 February 2013, it identified certain key
concerns in relation to progressing the Growthpoint Proposal,
being pricing certainty arising from Growthpoint’s proposed
price adjustment mechanics, Growthpoint’s due diligence
requirements and Redefine’s threat of litigation. These
concerns, along with the threat of litigation are, in the view
of the Independent Committee, exacerbated by the recent
developments although a detailed analysis of the impact of the
recent developments is, to some extent, academic, in the light
of the effective blocking stake of Redefine outlined above. In
addition, in its consideration of what is in the best interests
of Unitholders, the Independent Committee must pay due deference
to the interests of Redefine as a 45.6% Unitholder, without
preferring it to any other Unitholder.
Although the Independent Committee has been concerned about the
impact of the Proposals on the ability of Fountainhead to
enhance or maintain the value of its portfolio, it is also clear
that these concerns do not derogate from the obligation of the
full Board and Redefine to manage Fountainhead’s assets in a
manner that is commensurate with the fee paid to the
Fountainhead Manco. The Independent Committee notes that
Redefine perceives the Stake Building as aligning its interests
with those of Unitholders in this regard. Redefine has also
indicated that it proposes to appoint further directors to the
Board to “bolster the executive capacity and property
experience” of the Board, although these proposed appointments
were not discussed with the Board prior to being announced by
Redefine. In this regard, the FSB has indicated to the Board
that in “the circumstances [the FSB] are concerned that the
appointment of these directors may not be in the interest of the
scheme or investors” and has asked the Board whether there are
any matters or concerns they may have regarding the proposed
appointments. Clearly, notwithstanding Redefine’s assertion of
alignment of interests, these and other important matters will
need to be dealt with at Board level. In particular, Unitholders
will need to understand how new opportunities are passed as
between Redefine and Fountainhead.
The matters outlined above have been considered by the
Independent Committee within the context of its duty to act in
the best interests of Unitholders. Each member of the Board
will need to ensure that future decisions are taken in
accordance with the same guiding principle.
Withdrawal of cautionary
In light of the decision by the Independent Committee to
terminate its engagement with Growthpoint in relation to the
Growthpoint Proposal, Unitholders are no longer required to
exercise caution when dealing with their Fountainhead units.
28 March 2013
Merchant bank and transaction sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Legal Advisor
Bowman Gilfillan Inc.
Date: 28/03/2013 02:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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