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Proposed Internalisation of The Management of Texton
TEXTON PROPERTY FUND LIMITED
Granted REIT status by the JSE
(Incorporated in the Republic of South Africa)
Registration number: 2005/019302/06
JSE code: TEX
ISIN: ZAE000190542
(“Texton” or “the Company”)
PROPOSED INTERNALISATION OF THE MANAGEMENT OF TEXTON
1. Introduction
Further to the announcement released on SENS on 9 March 2017, Texton shareholders
(“Shareholders”) are advised that Texton has agreed terms with the shareholders of Texton
Property Investments Proprietary Limited (“Texton Property Investments” or the “Manager”) to
cancel the asset management agreement between Texton and Texton Property Investments
(“Asset Management Agreement”), cede the rights and delegate the obligations of Texton
Property Investments under certain contracts to Texton, and sell certain assets to Texton for a cash
consideration of R180 million (excluding VAT, if applicable) (“Cancellation Consideration”), less
certain amounts that may be owing by Texton Property Investments in respect of the employees of
Texton Property Investments to be transferred to Texton as at the date upon which the cancellation,
cession, delegation and sale agreement (“Cancellation, Cession, Delegation and Sale
Agreement”) becomes valid and binding according to its terms.
The cancellation of the Asset Management Agreement, cession of the rights and delegation of the
obligations of Texton Property Investments in and to the contracts to Texton and sale of the assets
to Texton will result in Texton having internalised its management function (“Manco
Internalisation”).
The purpose of this announcement is to provide Shareholders with information relating to the terms
of the Manco Internalisation which have been agreed with the shareholders of Texton Property
Investments.
2. Circular
Shareholders are further advised that the Manco Internalisation is a related party and a category 2
transaction in terms of the JSE listings requirements (“Listings Requirements”). A circular
(“Circular”) detailing the terms of the Manco Internalisation and incorporating a notice convening a
general meeting of Shareholders to consider, and if deemed fit, approve the requisite resolutions
to implement the Manco Internalisation, will be posted to Shareholders on or about 16 August 2017
(the “General Meeting”).
3. Rationale
The board of directors of Texton (“Board”) recognises that the Manco Internalisation will better align
the interests of management with that of Shareholders and is in line with global best practice. The
Board further recognises that there is potential for increased interest in Texton’s shares as
international and local investors tend to favour internally managed property funds.
The Manco Internalisation will allow Texton to benefit from economies of scale derived from the
direct employment of the Texton Property Investments’ employees rather than paying an asset
management fee based on enterprise value. The removal of the asset management fee will allow
Texton to be more competitive in pricing new acquisitions.
Based on Texton’s closing share price on Friday, 14 July 2017 and other relevant valuation
assumptions, the Cancellation Consideration equates to approximately a 12.1% discount to the
contractual termination value as set out in the Asset Management Agreement.
4. Background of the Manager
Texton Property Investments provides asset management services exclusively to Texton in
accordance with the Asset Management Agreement. Day-to-day management and operational
functions are performed by the executive management team of Texton, who are employees of
Texton Property Investments.
The executive management team of Texton interact regularly with the shareholders of Texton
Property Investments through regular meetings and service-level agreements. The roles of Texton
Property Investments shareholders, executive management and directors are clearly defined and
specific responsibilities and committees including key deliverables and performance criteria are well
documented and covered in the Asset Management Agreement.
5. Terms of the Manco Internalisation
5.1 Cancellation, cession, delegation and sale of assets
Texton and Texton Property Investments have entered into a Cancellation, Cession,
Delegation and Sale Agreement which results in the following:
5.1.1 Texton and Texton Property Investments agreeing to cancel the Asset Management
Agreement, to release each other from their respective obligations in terms of the
Asset Management Agreement, and to waive any claim that either party has or may
have arising out of or in connection with the Asset Management Agreement, save for
any sums due but unpaid as at the date upon which the Cancellation, Cession,
Delegation and Sale Agreement becomes valid and binding according to its terms;
5.1.2 Texton Property Investments ceding all of its rights in certain contracts and delegating
all of its obligations in certain contracts to Texton;
5.1.3 Texton Property Investments selling certain assets to Texton, in which the ownership,
risks and benefits shall pass to Texton; and
5.1.4 the employment of each employee of Texton Property Investments will automatically
be transferred to Texton and continue in force with Texton as the new employer and
Texton shall make an offer of employment to an employee based in the United
Kingdom employed by Texton Property Investments UK Limited on the same current
terms and conditions, which are no less favourable to the employee, immediately prior
to the date upon which the Cancellation, Cession, Delegation and Sale Agreement
becomes valid and binding according to its terms.
The aggregate payment by Texton shall not exceed the Cancellation Consideration, which will
be settled in cash on the first business day after the fulfilment or waiver, as the case may be,
of the last of the conditions precedent set out in paragraph 5.2 below.
5.2 Conditions precedent
The Manco Internalisation will be subject to, inter alia, the fulfilment or waiver of the following
conditions precedent as set out in the Cancellation, Cession, Delegation and Sale Agreement:
5.2.1 written irrevocable undertakings from, or on behalf of, certain Shareholders including
Shareholders represented on the Board;
5.2.2 the Manco Internalisation being approved by the requisite majority of Shareholders at
the General Meeting;
5.2.3 a written resolution of the board of directors of Texton Property Investments confirming
that the board has determined the fair value of the assets and undertakings of Texton
Property Investments to be disposed of and that the Cancellation Consideration
constitutes fair consideration;
5.2.4 a written special resolution of the shareholders of Texton Property Investments
authorising the transactions contemplated in the Cancellation, Cession, Delegation
and Sale Agreement;
5.2.5 a written special resolution of the shareholders of Texton Holdings (RF) Proprietary
Limited (“Texton Holdings”), the 100% shareholder of Texton Property Investments,
authorising the transactions contemplated in the Cancellation, Cession, Delegation
and Sale Agreement;
5.2.6 Texton Property Investments has procured that Angelique Norma du Hecquet de
Rauville and Handful of Keys Proprietary Limited (registration number:
1997/021534/07), John Alastair Legh, and Mathys Johannes van Heerden and the
Nooitgedacht Familie Trust No.1 (IT number: 6731/2002), have each entered into the
relevant waiver and confidentiality agreement annexed to the Cancellation, Cession,
Delegation and Sale Agreement;
5.2.7 written confirmation from each counter-party to each of the contracts to be assigned
to Texton (other than Texton Property Investments) providing its full, final and
irrevocable consent to the cession of Texton Property Investments’ rights and
delegation of Texton Property Investments’ obligations under the contracts to Texton
on the terms and conditions set out in the Cancellation, Cession, Delegation and Sale
Agreement;
5.2.8 Texton Holdings obtaining either an independent expert report as to the fairness and
reasonableness of the transactions contemplated in the Cancellation, Cession,
Delegation and Sale Agreement, or a ruling from the Takeover Regulation Panel
exempting the board of Texton Holdings from obtaining an independent expert report;
and
5.2.9 all regulatory approvals and/or consents as may be necessary to give effect to the
Manco Internalisation have been obtained (either unconditionally or subject to
conditions acceptable to the parties against whom such conditions will be
enforceable), including, without limitation, the JSE Limited, Takeover Regulations
Panel and/or the South African Competition Authorities.
6. Related party transaction
The Manco Internalisation is classified as a related party transaction in terms of the Listings
Requirements, given that Texton Property Investments is the asset manager of Texton, and
accordingly requires Shareholder approval.
The shareholders of Texton Holdings are set out in the table below:
%
Texton Holdings shareholder
shareholding
Investec Bank Limited 25.00%
Handful of Keys Proprietary Limited (a 1.58% shareholder in Texton) 25.00%
John Alastair Legh (a non-executive director and 2.53% shareholder in Texton) 18.75%
Nooitgedacht Familie Trust No. 1 (of which Mathys Johannes van Heerden, a
non-executive director of Texton, is a trustee and beneficiary. Nooitgedacht 18.75%
Familie Trust No. 1 is a 4.18% shareholder in Texton)
N&G Trust (a 0.21% shareholder in Texton) 12.50%
7. Fairness opinion
Questco Proprietary Limited has been appointed as the independent expert to the independent sub-
committee of the Board, in relation to the Manco Internalisation to advise on whether, in its opinion,
the Cancellation Consideration is fair, as well as reasonable. The fairness opinion will be included
in the circular issued to Shareholders in respect of the Manco Internalisation.
8. Indicative pro forma financial effects
The indicative pro forma financial effect of the Manco Internalisation is a 2.3% dilution to Texton’s
distribution per share from 47.95 cents to 46.83 cents for the 6 months ended 31 December 2016.
The calculation of the above indicative pro forma financial effect has not been reviewed by the
independent reporting accountants.
Further information regarding the pro forma financial effects of the Manco Internalisation will be
included in the Circular.
Hyde Park
21 July 2017
Sponsor
Investec Bank Limited
Legal advisor and competition law advisor
Norton Rose Fulbright South Africa Inc
Independent expert
Questco Proprietary Limited
Independent reporting accountants
KPMG Inc
Date: 21/07/2017 04:36:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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