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GEMGROW PROPERTIES LIMITED - Potential merger of Arrowhead and Gemgrow and joint cautionary announcement

Release Date: 10/04/2019 12:45
Code(s): GPA GPB AWA     PDF:  
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Potential merger of Arrowhead and Gemgrow and joint cautionary announcement

(Incorporated in the Republic of South Africa)               (Incorporated in the Republic of South Africa)
(Registration number 2011/000308/06)                         (Registration number 2007/032604/06)
JSE share code: AWA ISIN: ZAE000203105                       JSE share code: GPA ISIN: ZAE0000223269
 (Approved as a REIT by the JSE)                             JSE share code: GPB ISIN: ZAE0000223277
(“Arrowhead”)                                                (Approved as a REIT by the JSE)
                                                             ("Gemgrow" or “the company”)


1. The Transaction

   Shareholders of both Arrowhead and Gemgrow (the “Parties”) are advised that their respective boards
   of directors (the “Boards”) have, in principle, agreed to a potential transaction which may result in the
   reverse takeover of Gemgrow by Arrowhead (the “Merger”).

   Gemgrow, a separately listed entity, was established in its current form in 2016, pursuant to a transaction
   concluded between its major shareholders, Arrowhead and Vukile Property Fund Limited (“Vukile”).
   Arrowhead currently owns 53.3% of Gemgrow.

   Since its inception, Gemgrow has successfully grown its property portfolio from c.R4,3 billion to
   c.R5,6 billion via pro-actively recycling assets, selling off a number of its smaller assets and acquiring
   better quality, larger assets. As a result, Gemgrow’s property portfolio is now more closely aligned with
   that of Arrowhead.

   The Boards are of the view that there is no longer a clear rationale to retain two separate listings and
   believe that, in the current challenging operating environment, a simplified group structure would be
   more efficient and create synergistic benefits for all shareholders. In addition to Arrowhead’s support for
   the Merger, Vukile, being Gemgrow’s second largest shareholder, has provided an irrevocable
   undertaking to support the Merger.

   It is expected that Gemgrow shareholders will benefit through improved liquidity, a significantly
   enhanced Gemgrow A share cash cover, as well as better future access to equity capital markets to
   support growth.

   Post implementation of the Merger, the merged entity will take steps to strengthen its balance sheet by
   reducing debt and will continue to explore all available opportunities to unlock value by simplifying its
   group structure.

2. Transaction Overview

   It is contemplated that the Merger, if approved, will be implemented as a reverse take-over of Gemgrow
   by Arrowhead. This transaction structure has been selected by the Parties so that the merged entity can
   continue to leverage off Gemgrow’s dual-class share structure, which remains a valuable differentiator
   in the REIT sector, particularly in the context of any potential future industry consolidation.

   It is anticipated that the Merger will be implemented on the following salient terms:

        -   the acquisition by Gemgrow of all of the issued shares in Arrowhead (“Arrowhead Scheme
            Shares”), by way of a scheme of arrangement between Arrowhead and its shareholders (“the
            Scheme”) in terms of section 114 of the Companies Act, 71 of 2008;

        -   Gemgrow shall, as consideration for each Arrowhead Scheme Share acquired, issue and allot
            0.8237 Gemgrow B ordinary shares, which ratio has been calculated using the forecast
            earnings of both Parties, adjusted for certain listed company distributions; and
        -   an economic effective date of 1 April 2019, resulting in each of Arrowhead and Gemgrow
            paying a dividend in the ordinary course of business to their respective shareholders in respect
            of earnings available for distribution for the period ended 31 March 2019.

   This announcement does not constitute an offer, undertaking or firm intention to make an offer to
   Arrowhead shareholders by any party, including by Gemgrow.

3. Irrevocable undertakings

   In terms of the JSE Listings Requirements, the Merger constitutes both a Category 1 and related party
   transaction for Gemgrow and accordingly Gemgrow shareholder approval will be required.

   Vukile, which holds 7.48% of the Gemgrow A ordinary shares and 28.0% of the Gemgrow B ordinary
   shares in issue (representing 25.3% of all the shares eligible to vote on the Merger), has irrevocably
   undertaken that, if the Scheme is proposed, Vukile will vote in favour of all Gemgrow resolutions
   necessary to approve the Merger.

   In addition, Arrowhead has irrevocably undertaken to vote its Gemgrow B ordinary shares in favour of
   all Gemgrow resolutions necessary to approve the Merger (recognising that a number of these
   resolutions will require the approval of a majority of Gemgrow shareholders excluding Arrowhead).

4. Gemgrow corporate governance

   In ensuring compliance with appropriate corporate governance Mark Kaplan (CEO of both Arrowhead
   and Gemgrow) has recused himself from Gemgrow Board meetings at which the Merger has been
   considered. Further, the Gemgrow Board has appointed Nedbank Corporate and Investment Banking
   as independent corporate advisor to Gemgrow.

5. Cautionary announcement

   Arrowhead and Gemgrow shareholders are advised that discussions between the Parties in this regard
   remain ongoing and accordingly, shareholders should exercise caution when dealing in their respective
   shares until a further announcement in respect of the Merger has been made.

10 April 2019

Corporate advisor and sponsor to Arrowhead
Investec Bank Limited

Independent corporate advisor and transaction sponsor to Gemgrow
Nedbank Corporate and Investment Banking

Corporate advisor to Gemgrow
Investec Bank Limited

Strategic transaction advisor to Arrowhead
Ferryman Capital Partners

Legal advisor
Cliffe Dekker Hofmeyr

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