Firm intention by Redefine to make an offer to acquire the entire issued linked unit capital of Annuity
ANNUITY PROPERTIES LIMITED REDEFINE PROPERTIES LIMITED
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
(Registration Number 2011/145994/06) (Registration number 1999/018591/06)
JSE share code: ANP ISIN: ZAE000165643 JSE share code: RDF ISIN: ZAE000143178
JOINT ANNOUNCEMENT REGARDING:
- A FIRM INTENTION BY REDEFINE TO MAKE AN OFFER TO ACQUIRE THE ENTIRE ISSUED
LINKED UNIT CAPITAL OF ANNUITY (“FIRM INTENTION ANNOUNCEMENT”);
- THE ACQUISITION BY REDEFINE OF ALL THE SHARES IN AND CLAIMS AGAINST ANNUITY
ASSET MANAGERS PROPRIETARY LIMITED (“ANNUITY ASSET MANAGERS”) AND ANNUITY
PROPERTY MANAGERS PROPRIETARY LIMITED (“ANNUITY PROPERTY MANAGERS”); AND
- WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
The respective boards of directors of Annuity and Redefine are pleased to announce that on 7 March 2014 -
- Annuity and Redefine (the “Parties”) entered into an offer and implementation agreement (the
“Implementation Agreement”) in terms of which Redefine undertakes to make an offer through this
Firm Intention Announcement (the “Offer”) to acquire all the issued linked units of Annuity (“Annuity
Linked Units”) from the holders of Annuity Linked Units (“Annuity Linked Unitholders”) by way of
one or more indivisibly inter-related schemes of arrangement (“Schemes”) in terms of section 114 of
the Companies Act 71 of 2008, as amended, (the "Companies Act") made in respect of Annuity
ordinary shares and Annuity debentures, to be proposed by the independent board of directors of
Annuity ("Annuity Board") between Annuity Linked Unitholders; and
- Redefine has concluded agreements with the shareholders of Annuity Asset Managers and Annuity
Property Managers to acquire all the ordinary shares in and shareholder claims against Annuity Asset
Managers and Annuity Property Managers, on and with effect from the date of implementation of the
Scheme (the "Manco Transaction"),
(collectively, the “Proposed Transaction”).
In terms of the Offer, Annuity Linked Unitholders will, if the Schemes become operative, receive 0.57752
Redefine linked units (“Redefine Linked Unit”) for every 1 Annuity Linked Unit (“Scheme Consideration”)
held by them on the Scheme Consideration record date (the “Scheme Record Date”).
Based on the clean 30 day volume weighted average price ("VWAP") of Redefine’s linked units, the
Scheme Consideration represents a premium of 9.3% to the VWAP of Annuity Linked Units traded on the
securities exchange operated by the JSE Limited ("JSE") over the 30 days up to and including the date on
which the first cautionary announcement was released on SENS, being 12 December 2013 (the
"Publication Date"). Based on the clean 5 day VWAP of Redefine’s linked units, the Scheme Consideration
represents a premium of 5.9% to the 5 day VWAP of Annuity Linked Units traded on the JSE up to and
including 6 March 2014, being the last business day immediately prior to the date of this Firm Intention
The Proposed Transaction equates to an implied property yield of approximately 8.5% on Annuity’s property
The Schemes will be subject to the fulfilment of the conditions precedent referred to in paragraph 5 below.
In terms of the Manco Transaction, Redefine will acquire the ordinary shares in and shareholder claims
against Annuity Asset Managers and Annuity Property Managers for a cash consideration of R86.2 million
and R16.9 million respectively, less the amount, if any, by which the direct costs incurred by Annuity in
relation to the Schemes exceed R11 million.
2. INFORMATION ABOUT REDEFINE
Redefine, a diversified property company, is the second largest listed REIT on the JSE, by market
- a total GLA of 3.125 million m² across 251 properties, valued at R24 billion; and
- a R6 billion portfolio of listed property securities, which includes investments in Fountainhead Property
Trust, Redefine International PLC (“Redefine International”) and the Cromwell Property Group
Its significant shareholdings in Redefine International and Cromwell provide Redefine with superior
geographic diversification to the international property market.
3. RATIONALE FOR THE PROPOSED TRANSACTION
Annuity listed on the JSE as a diversified small-cap property fund underpinned by a portfolio of A-grade and
premium assets on listing. Consistent with this strategy and market positioning, Annuity has continued to
focus on the acquisition of A-grade / high quality properties (“Target Assets”) by successfully competing for
assets against significantly larger property funds. As a consequence, it managed to grow its portfolio size
from R600 million to R2 billion within 18 months of listing on a non-dilutive basis.
This success (notwithstanding its structural disadvantages versus its larger competitors) was largely due to
management’s networks and relationships within the sector, favourable market sentiment towards listed
property and favourable market conditions (relatively low cost of capital and the ability to borrow cheaply
relative to asset prices).
On a relative basis, Annuity has remained at a significant disadvantage to its competitors due to its limited
liquidity and scale, which has resulted in a discounted rating.
The Annuity Board has noted certain structural market changes in the listed property sector in the last 12
months (specifically after May 2013) which have negatively impacted investor sentiment towards the South
African listed property sector, specifically small-cap, illiquid property stocks, and, as a consequence, the
ability of Annuity to continue to pursue its stated strategy of acquiring Target Assets on a non-dilutive basis.
The aforementioned structural changes in the sector include, inter alia:
- increase in bond yields and cost of capital (both debt and equity);
- shift of investors from emerging markets to developed markets;
- limited liquidity in capital markets to fund acquisitions;
- increase in the discount applied by investors to illiquid small-mid cap property stocks;
- scarcity of Target Assets and competition for stock is driving yields to levels unachievable for Annuity
to transact without significant dilution; and
- increased market volatility and reluctance of vendors to bear execution risk.
Given the above structural changes, on a stand alone basis, Annuity’s current strategy is unlikely to produce
the required growth to achieve the scale to justify a re-rating and the improved liquidity that will enable it to
compete effectively for Target Assets.
Maximising Annuity Linked Unitholders’ interests
Having considered various strategic alternatives available to Annuity, the Annuity Board believes that the
Proposed Transaction provides Annuity Linked Unithholders the opportunity to maximise and protect value
in a volatile environment by swapping into a diversified large cap property stock at premium. In addition, the
Proposed Transaction provides Annuity Linked Unitholders with:
- exposure to Redefine’s quality defensive retail and international property portfolio (superior
geographic diversification) which is a good fit for Annuity’s quality assets;
- attractive development pipeline; and
- significantly superior liquidity to Annuity with an average daily value traded of approximately R54.5
million in the 2013 calendar year.
Rationale for Redefine
The Proposed Transaction enables Redefine to substantially advance its investment strategy in a single
transaction, which is to expand its local property portfolio through the acquisition of prime quality assets at
4. THE SCHEME CONSIDERATION
4.1 The Schemes, if implemented, will entitle those persons who are recorded in the securities register of
Annuity on the record date for participation in the Scheme (the "Scheme Record Date"), to receive
the Scheme Consideration (“Scheme Participants”).
4.2 The Scheme Consideration will be issued ex entitlement to the Redefine income distribution for the 6
month period ended 28 February 2014. Annuity Linked Unitholders will become entitled, pursuant to
the Schemes, to the Redefine income distribution for the period commencing 1 March 2014 and its
future income distributions.
4.3 The Annuity Linked Units held by Scheme Participants on the Scheme Record Date will be acquired
by Redefine ex entitlement to the Annuity income distribution for the period ended 28 February 2014,
which will be paid as a special dividend and/or interest distribution by Annuity, pursuant to the
Schemes, on Annuity Linked Units, for the 5 month distribution period ending 28 February 2014 (the
“Special Distribution”). The Special Distribution is expected to be paid at the earlier of the time of
implementation of the Schemes (“Operative Date”) or 31 July 2014.
5. CONDITIONS PRECEDENT TO IMPLEMENTATION OF THE SCHEMES
The Schemes will be subject to the fulfilment or (where applicable) waiver of the following conditions
5.1 as at the date at which the scheme resolutions approving the Schemes (“Scheme Resolutions”) have
been voted on, no material adverse change has occurred in respect of any of Annuity, Annuity Asset
Managers and Annuity Property Managers. In relation to this paragraph, material adverse change
5.1.1 any circumstance, fact or event, actual or which has arisen or might reasonably be expected
to arise which, alone or together with any other circumstance, fact or event, which has arisen
or which might reasonably be expected to arise has, or is reasonably be expected to have,
the effect of a reduction of 5% or more of Annuity’s net property income and/or a reduction of
5% or more of the value of the Annuity property portfolio (other than a reduction in value
resulting from macro-economic factors including changes to applicable discount rates used
for valuing properties, not related to the specific factors of the property/ies concerned);
5.1.2 the termination of the asset management agreement between Annuity and Annuity Asset
Managers in accordance with its terms, at any time before the Operative Date; or
5.1.3 Annuity having breached any of the undertakings referred to in paragraphs 7.1 and 7.3 (and
more fully described in the Implementation Agreement) and not having remedied such
breach within 10 business days of receipt of written notice from Redefine requiring it to do so
(and in any event by no later than immediately before the Scheme Resolutions are voted on
at the relevant meetings of Annuity Linked Unitholders);
5.2 by not later than 17h00 on 30 September 2014, the approval of the Scheme Resolutions and the
approval of the Special Distribution by the requisite majority of Annuity Linked Unitholders at the
general meetings convened to approve the Schemes (“Scheme Meetings”) is obtained;
5.3 by not later than 17h00 on 30 September 2014, to the extent required under section 115(3), approval
of the implementation of the Scheme Resolutions by the court is obtained and, if applicable, Annuity
not having treated the Scheme Resolutions as a nullity (which it may not do unless it is instructed to do
so by Redefine), as contemplated in section 115(5)(b) of the Companies Act;
5.4 as at 17h00 on the second business day after the date of conclusion of the last of the Scheme
Meetings, Annuity Linked Unitholders holding more than 5% of all the issued Annuity Linked Units not
having given, in terms of section 164(3) of the Companies Act, valid notice of objection to the Scheme
Resolution taken at either of the Scheme Meetings and those objecting Annuity Linked Unitholders not
having voted against the Scheme Resolutions in respect of more than 5% of the issued Annuity Linked
Units at the relevant Scheme Meeting;
5.5 by not later than 17h00 on 30 September 2014, the receipt of the unconditional approval in writing of
the relevant South African competition authority/ies, to the extent required in terms of the Competition
Act, of the Proposed Transaction, or if such approval is conditional, such conditions being acceptable
to the Parties upon whom they are imposed or upon whom they have an impact, in their sole and
absolute discretion, provided however that –
5.5.1 in considering whether to accept any such condition, each Party shall act in good faith;
5.5.2 Redefine shall be bound to accept any such condition which requires it, or once the
Schemes have been implemented, Annuity to use reasonable endeavours (but does not
legally oblige it) to amend any existing lease agreement in respect of any retail premises
forming part of the property portfolio of Annuity so as to remove any exclusivity provisions
therefrom upon the renewal of such lease; and
5.5.3 Redefine shall not be bound to accept any such condition which requires the disposal of
immovable property from the property portfolio of Annuity or Redefine;
5.6 as at 17h00 on the date on which the last of the conditions in clauses 5.2 to 5.5 has been fulfilled or,
where appropriate, waived, none of the following events shall have occurred in respect of Annuity or
5.6.1 any corporate action, legal proceedings or other procedure or other step (including an
application to court, proposal of a resolution or convening of a meeting of Annuity Linked
Unitholders, members, directors or other officers) is taken by any person with a view to –
126.96.36.199 a moratorium, compromise, composition, business rescue or similar arrangement
with any of its creditors;
188.8.131.52 its winding-up, dissolution or commencement of business rescue proceedings, or
for the seeking of relief under any applicable bankruptcy, insolvency, company or
similar law, or any such resolution; or
5.6.2 the value of its assets is less than its liabilities (taking into account of contingent and
prospective liabilities) or it is unable to pay its debts as they fall due;
5.7 by not later than 17h00 on 30 September 2014, the issue of a compliance certificate by the Takeover
Regulations Panel (“TRP”) in relation to the Schemes; and
5.8 by not later than 17h00 on 30 September 2014, the Manco Transaction having become unconditional
(save for any condition therein that the Schemes become unconditional and/or are implemented) and
capable of implementation in accordance with its terms.
The conditions set out in paragraphs 5.2, 5.3, 5.5 and 5.7 above are of a regulatory nature and cannot be
waived. The conditions set out in paragraphs 5.1 and 5.4 can be waived or relaxed by Redefine. The
condition set out in paragraph 5.8 can be waived through mutual agreement by Annuity and Redefine.
6. ANNUITY SHARE INCENTIVE SCHEME
Redefine will use its reasonable endeavours to procure that, subject to the Schemes becoming
unconditional in all respects, unvested options which have been awarded under the share option scheme
operated by the Annuity Share Incentive Scheme Trust (“Share Option Scheme”) and which have, at the
date of signature of the Implementation Agreement, not lapsed or been forfeited, will be entitled to receive
cash equal to the difference between the Scheme Consideration and the purchase price (strike price)
payable by the relevant option holder in respect of each option held by them, as consideration for the option
holders waiving all rights which they may have under the Share Option Scheme and forfeiture of their
options on the Operative Date.
There are currently 7 000 000 unvested options in respect of Annuity Linked Units which have been
awarded to certain executive directors by Annuity under the Share Option Scheme. Such options, in terms
of the rules of the Share Option Scheme, have a purchase price (strike price) payable by the relevant option
holder in respect of each option held by them of R5.00 per Annuity Linked Unit.
7. IMPLEMENTATION AGREEMENT
7.1 Between the date of signing of the Implementation Agreement and the Operative Date (“Interim
Period”), each of Annuity and Annuity Asset Managers shall not directly or indirectly solicit any
alternative proposal to the Proposed Transaction and are further precluded from approving or
recommending any alternative proposal or the entering into of any agreement in respect of an
7.2 Notwithstanding the above Annuity, the Annuity Board or Annuity Asset Managers will not be
prevented from complying with any requirements imposed by law or the rules of any regulatory body
in respect of any alternative proposal.
7.3 Annuity undertakes that until the Operative Date, it shall (unless this agreement is terminated) carry
on its business substantially in the ordinary and regular course and, as such, it shall continue to
conduct its business on the same basis and in the same manner as it did immediately prior to the
conclusion of the Implementation Agreement. Redefine undertakes that, until the Operative Date, it
shall not effect any subdivisions of its linked unit capital or any capital distributions without having
agreed an appropriate amendment to the Scheme Consideration with Annuity.
8. BREAK FEE
Annuity has agreed to pay Redefine a break fee equivalent to 1% of the value of the aggregate Scheme
Consideration measured on the date the Implementation Agreement was signed, if an alternative proposal
is announced and subsequently implemented
9. FUNDING OF THE PROPOSED TRANSACTION
Redefine has an authorised linked unit capital of 6 500 000 000 linked units and an issued linked unit capital
of 3 070 978 269 linked units as at the date of this Firm Intention Announcement.
The Schemes, if implemented, will entitle the Scheme Participants to receive a consideration of 0.57752 of
a Redefine Linked Unit for every Annuity Linked Unit issued pursuant to the Schemes. A Redefine linked
unit comprises one Redefine share indivisibly linked to one Redefine debenture.
If the aggregate number of Redefine linked units deliverable to an Annuity Linked Unitholder yields a
fractional result then the number of Redefine linked units shall be rounded up to the nearest whole number
if the fraction equals 0.5 or more, and the number shall be rounded down to the nearest whole number if the
fraction equals less than 0.5 (“Rounding Convention”).
If the Schemes are implemented, 136 625 506 Redefine Linked Units (subject to the Rounding Convention)
will be issued to Annuity Linked Unitholders in consideration for all the Scheme Linked Units (being 236 572
769 Annuity Linked Units).
Consequently, Redefine has sufficient authorised but unissued linked units in its linked unit capital and
authorised but unissued linked units to issue the full consideration in terms of the Scheme to Annuity Linked
Unitholders if the Schemes are approved and implemented.
10. UNITHOLDING OF REDEFINE IN ANNUITY AND CONCERT PARTIES
10.1 As at the date of this announcement, Redefine does not hold or control (directly or indirectly) any
Annuity Linked Units or any options to acquire Annuity Linked Units.
10.2 As at the date of this announcement, the directors of Annuity hold or control (directly or indirectly)
8 251 141 Annuity Linked Units representing 3.5% of the Scheme Linked Units.
10.3 With the exception of the Implementation Agreement, the Manco Transaction, and the arrangements
in respect of the Share Option Scheme detailed in paragraph 6, no arrangements, agreements or
understandings which have any connection with or dependence on the Proposed Transaction
existed between Annuity, any Annuity Linked Unitholders, Redefine or any person acting in concert
with it, or any director of Annuity or any person who was a director of Annuity within the period
commencing 12 months prior to the date of this Firm Intention Announcement, or any person who is
or was an Annuity Linked Unitholder within the abovementioned period.
11. IRREVOCABLE UNDERTAKINGS AND LETTERS OF COMFORT
By 28 February 2014 Annuity has received irrevocable undertakings or support letters from Annuity Linked
Unitholders holding approximately 78.1% of the total number of Annuity Linked Units in issue on that date
(after excluding the Annuity Linked Units held or controlled by the directors of Annuity, representing 3.5% of
the issued Annuity Linked Units).
12. INDEPENDENT BOARD AND FAIR AND REASONABLE OPINION
The Annuity Independent Board, comprising Anthony Mark Chait, Eugene Coenraad Loubser and Sarah
Jane Williams, has appointed Deloitte and Touche Corporate Finance, an independent adviser acceptable
to the TRP, as the independent expert (the “Independent Expert”) in terms of section 114(2) of the
Companies Act and the regulations published in terms of section 120 of the Companies Act and set out in
Chapter 5 of the Companies Regulations, 2011 (“Takeover Regulations”), to provide it with external advice
in relation to the Schemes and to make appropriate recommendations to the Independent Board in the form
of a fair and reasonable opinion in terms of section 114(3) of the Companies Act and Takeover Regulation
The substance of the external advice received from the Independent Expert and the views of the Annuity
Independent Board will be detailed in the circular to Annuity Linked Unitholders in relation to the Schemes
13. POSTING OF THE SCHEME CIRCULAR
Details of the Schemes will be included in the Scheme Circular, which will contain, inter alia, the terms of
the Schemes, a notice convening each of the Scheme Meetings, forms of proxy in connection with the
Scheme Meetings, and a form of acceptance, surrender and transfer in respect of Annuity Linked Units.
Subject to the requisite approvals being received from the JSE, the TRP, and the Financial Surveillance
Department of the South African Reserve Bank for the posting of the Scheme Circular, the Scheme Circular
is expected to be posted to Annuity Linked Unitholders around mid April 2014 in accordance with the
parties’ obligations in terms of the Takeover Regulations.
14. UNAUDITED PRO FORMA EARNINGS AND NET ASSET VALUE EFFECTS PERTAINING TO THE
Based on the clean Annuity 30 day VWAP per linked unit to 12 December 2013 of R5.07 and Redefine’s
clean 30 day VWAP per linked unit to 12 December 2013 of R9.59, the Scheme Consideration represents
an implied clean offer price for Annuity of R5.54 on that date, i.e. a premium of 9.3%.
In addition to the above, Annuity linked unit holders will also receive the Special Distribution payable to
Annuity linked unit holders for the 5 month period to 28 February 2014 of approximately 20 cents per linked
unit (per Annuity’s last published forecast for the financial year ending 31 March 2014).
In terms of Regulation 101(7)(b)(iv) of the Companies Regulations 2011, a firm intention announcement
must contain inter alia, the pro forma earnings and asset value per offeree regulated company security if the
offer consideration consists wholly or partly in offeror securities.
The unaudited pro forma financial effects of the Schemes for Annuity Linked Unitholders, for only which the
Annuity Board is responsible, are provided for illustrative purposes only to provide information about how
the Schemes may have affected Annuity Linked Unitholders, and because of their nature, may not fairly
represent the effect on Annuity Linked Unitholders after the Schemes.
The unaudited pro forma adjustments to the statement of comprehensive income have been calculated on
the assumption that the operative date of the Schemes was on 1 October 2012, illustrating the effect of 1
Annuity Linked Unit being exchanged for 0.57752 Redefine linked units, and, for the purposes of the
statement of financial position, as if the operative date of the Schemes was on 30 September 2013.
The table below sets out the unaudited pro forma financial effects of the Schemes based on the 12 months
results for Annuity to 30 September 2013:
Before the After the Change
Schemes Schemes %
Basic earnings per linked unit (cents) 84.94 110.89 30.5%
Headline earnings per linked unit (cents) 57.13 56.23 -1.6%
Distribution per linked unit (cents) 43.90 41.08 -6.4%
Net asset value per linked unit (cents) 520.00 503.59 -3.2%
Tangible net asset value per linked unit (cents) 520.00 404.36 -22.2%
Weighted average number of linked units in issue (‘000) 232 383 134 206
Number of linked units in issue (‘000) 232 383 134 206
Notes and assumptions:
1. The financial information in the “Before the Schemes” column has been prepared based on the 12
month results for Annuity to 30 September 2013, as extracted from Annuity’s interim results for the six
months ended 30 September 2013 as well as the financial statements for the 12 months ended 31
2. The financial information in the “After the Schemes” column is based on Redefine’s financial effects
pursuant to the Proposed Transaction and multiplying these results by 0.57752 to provide the pro
forma financial effects for Annuity Linked Unitholders.
15. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Following the release of this Firm Intention Announcement, the cautionary announcements originally
published by Annuity on 12 December 2013 and renewed on 30 January 2014, are withdrawn and caution
is no longer required to be exercised by Annuity Linked Unitholders when dealing in their Annuity Linked
16. ANNUITY RESPONSIBILITY STATEMENT
The Annuity Independent Board (to the extent that the information in this Firm Intention Announcement
relates to Annuity) accepts responsibility for the information contained in this Firm Intention Announcement
and, to the best of their respective knowledge and belief, the information is true and does not omit anything
likely to affect the importance of the information included.
17. REDEFINE RESPONSIBILITY STATEMENT
Redefine’s board of directors (to the extent that the information in this Firm Intention Announcement relates
to Redefine) accepts responsibility for the information contained in this Firm Intention Announcement and,
to the best of their respective knowledge and belief, the information is true and does not omit anything likely
to affect the importance of the information included.
7 March 2014
Lead Investment Bank and Transaction Sponsor to Annuity
Investec Bank Limited
Joint Investment Bank and Transaction Sponsor to Annuity
Sasfin Capital (A division of Sasfin Bank Limited)
Sponsor to Annuity
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Independent Expert to Annuity
Deloitte and Touche
Reporting accountants to Annuity and Redefine
Legal Advisor to Annuity
Sponsor and Corporate Advisor to Redefine
Legal Advisor to Redefine
DLA Cliffe Dekker Hofmeyr
Date: 07/03/2014 04:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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