South Africa

Fairvest and Arrowhead merger set to create biggest SA-focused Reit, a step closer

THE DEAL BETWEEN Fairvest Property Holdings and Arrowhead Properties (AHP) to create the biggest South Africa focused Real Estate Investment Trust (Reit) took a step closer with yesterday's joint announcement of terms of a proposed single step merger.

On September 7, Fairvest shareholders voted in favour of the acquisition of AHP B ordinary shares in exchange for Fairvest shares, based on a ratio of 1.85 Fairvest shares per AHP share.

If implemented, the share swop would result in Fairvest acquiring control of AHP – the combined group will have a R12.7 billion portfolio. As an alternative to the acquisition, the two companies were engaging about the possibility of a single-step merger – the Fairvest acquisition plan was only in the event that a single-step merger did not succeed for whatever reason.

Yesterday, the companies said they had entered into a scheme implementation agreement setting out the terms and conditions of the merger.

Although the merger remained Fairvest-led, for structural reasons, it was proposed that Arrowhead would acquire Fairvest. Fairvest would propose a scheme of arrangement to its shareholders, and to which Arrowhead would be a party.

The pricing would mirror the share swop ratio with AHP offering to issue 0.54054 AHP shares per Fairvest share acquired.

Fairvest's listing would be terminated.

AHP's listing would be retained, but would change its name “to Fairvest Limited or the like,” a statement said.

The transaction was expected to unlock value for shareholders and the initiative was widely supported by shareholders in both companies.

“Investors generally favour larger Reits in which their investment is liquid.

“In addition, key shareholders have expressed confidence in Fairvest's ability to unlock value both operationally and through capital allocation within its traditional low-income retail focus as well as from other sub-classes of investment property,” the companies said yesterday.

A single step merger would accelerate the new management team's access to the combined portfolio and bring forward the ability to realise operational cost savings, as well as cost savings attributable to a single listing, a single board, and a reduced number of executives. AHP's B shares fell 4.94 percent to close at R4.04 on the JSE yesterday, while Fairvest's share price gained 2.44 percent to close at R2.10.

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