27 Sep - 16 min read

Joint firm intention announcement - Proposed merger between Fairvest and Arrowhead and withdrawal of cautionary

Joint firm intention announcement - Proposed merger between Fairvest and Arrowhead and withdrawal of cautionary

FAIRVEST PROPERTY HOLDINGS LIMITED                         ARROWHEAD PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)             (Incorporated in the Republic of South Africa)
(Registration number 1998/005011/06)                       (Registration number 2007/032604/06)
JSE share code: FVT ISIN: ZAE 000203808                    JSE share code: AHA ISIN: ZAE000275491
(Approved as a REIT by the JSE)                            JSE share code: AHB ISIN: ZAE000275509
(Fairvest)                                                 (Approved as a REIT by the JSE)
                                                           (Arrowhead)


JOINT FIRM INTENTION ANNOUNCEMENT REGARDING A PROPOSED MERGER BETWEEN FAIRVEST
AND ARROWHEAD BY WAY OF A SCHEME OF ARRANGEMENT AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENTS


1.     Introduction

       Shareholders are referred to the cautionary announcements released by Arrowhead and Fairvest (the
       Parties) on SENS, the latest being on 9 September 2021 and 17 September 2021, respectively; and the
       SENS announcement released by Fairvest on 7 September 2021.

       In those announcements Fairvest and Arrowhead shareholders were advised that:

           -   at the general meeting of Fairvest shareholders held on Tuesday, 7 September 2021, all the
               resolutions required to be passed by Fairvest shareholders in order to authorise and approve,
               inter alia, (i) the acquisition by Fairvest of certain Arrowhead B ordinary shares (AHB Shares) in
               exchange for the issue of Fairvest ordinary shares (Fairvest Shares), based on a ratio of 1.85
               Fairvest Shares per AHB Share (Share Swap Ratio), which would, if implemented, result in
               Fairvest acquiring control of the majority of the Arrowhead shares in issue and entitling Fairvest
               to exercise the majority of the voting rights attaching to all Arrowhead shares in issue (Fairvest
               Acquisition) and (ii) the internalisation of Fairvest’s asset management function (Manco
               internalisation) were passed by the requisite majority of Fairvest shareholders.

           -   as an alternative to the acquisition by Fairvest of a controlling shareholding in Arrowhead,
               Arrowhead and Fairvest were engaging regarding the possibility of a single-step merger
               (Merger). In line with what has been communicated in the circular issued to Fairvest shareholders
               on 10 August 2021 (Fairvest Circular), if Arrowhead and Fairvest agree on the terms of a
               Merger, they will work together on the appropriate process to obtain the required approvals.
               However, the Merger may succeed or fail and accordingly, Fairvest proceeded to seek Fairvest
               shareholder approval for, inter alia, the Fairvest Acquisition but will only implement this
               transaction, once unconditional, if the Merger does not succeed for any reason.

        Fairvest and Arrowhead have entered into a scheme implementation agreement and an addendum
        thereto (the Implementation Agreement) setting out, inter alia, the terms and conditions of the Merger.
        Although the Merger remains Fairvest-led, for structural reasons, it is proposed that Arrowhead will
        acquire Fairvest.

        The Merger will be implemented by way of a scheme of arrangement (Scheme) in terms of section 114
        of the Companies Act, No. 71 of 2008 (Companies Act), to be proposed by Fairvest to its shareholders
        (Transaction), and to which Arrowhead will be a party. The pricing of the Transaction will mirror the
        Share Swap Ratio with Arrowhead offering to issue 0.54054 AHB Shares per Fairvest Share acquired
        pursuant to the Transaction (i.e. the inverse of the Share Swap Ratio) (Scheme Consideration or
        Scheme Consideration Shares).

        In the event that the Scheme is implemented, the listing of Fairvest Shares on the Main Board of the JSE
        Limited (JSE) and on A2X will be terminated. Arrowhead shall remain listed on the Main Board of the JSE
        and (subject to the necessary shareholder approval) will change its name to Fairvest Limited or the like.

     2. Rationale for the Transaction

        The Transaction is expected to unlock value for shareholders of both Arrowhead and Fairvest and is an
        initiative that has been widely supported by shareholders of 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 implementation of the Merger in a single step will accelerate the new management team’s access to
        the combined portfolio and brings forward the ability to realise operational cost savings, as well as cost
        savings attributable to a single listing, a single board of directors, and a reduced number of executives
        across the two businesses.

        Both Fairvest and Arrowhead’s property portfolios are exclusively focused within South Africa and the
        merged company will be the largest exclusively South African-focused REIT with a portfolio of about
        R12.74 billion.

3.      Nature of the businesses

        Arrowhead is a diversified South African REIT listed on the JSE holding a portfolio comprising 123 retail,
        office and industrial properties with a total gross lettable area of 1 024 097 m² and valued in aggregate
        at R9.3 billion. Arrowhead holds a 60.0% interest in JSE-listed Indluplace Properties Limited, which owns
        a portfolio of residential properties, as well as an 8.6% interest in JSE-listed Dipula Income Fund Limited.

        Fairvest is a South African REIT listed on the JSE and A2X with a focus on retail assets weighted toward
        non-metropolitan and rural shopping centres, as well as convenience and community shopping centres
        servicing the lower LSM market, in high-growth nodes, close to commuter networks. The Fairvest portfolio
        comprises 43 properties located throughout South Africa, with a total gross lettable area of 250 896m²
        and valued in aggregate at R3.44 billion.

4.      Salient terms of the Transaction

        4.1.   Scheme Consideration

               Arrowhead shall allot and issue 0.54054 new AHB Shares to the Scheme participants for each
               Fairvest Share acquired in terms of the Scheme. Where a Fairvest shareholder’s entitlement to the
               Scheme Consideration results in a fractional entitlement, such fraction of an AHB Share will be
               rounded down to the nearest whole number, resulting in allocations of whole AHB Shares, and a
               cash payment will be made to each Scheme participant for the fraction, as required, based on the
               volume weighted average share price traded on the JSE on the day after the expected Scheme
               last day to trade discounted by 10%.
4.2.   Conditions to implementation of the Scheme

       Shareholders are advised that the unconditional approval by the relevant South African competition
       authority/ies, in terms of the Competition Act 89 of 1998, as amended, has been obtained in respect
       of the Transaction.

       The implementation of the Scheme is subject to the fulfilment or waiver, as the case may be, of the
       following remaining suspensive conditions (Conditions Precedent) contained in the
       Implementation Agreement:

       4.2.1   (i) by no later than 17h00 on 31 October 2021, Arrowhead has reached agreement on
               terms Fairvest has confirmed in writing are acceptable to its board, with each of Mr Mark
               Kaplan and Mr Junaid Limalia in terms of which they will resign as Arrowhead’s chief
               executive officer and chief financial officer respectively, on or before the last day of the
               month during which the Scheme Operative Date occurs (with the terms of their departure
               being in accordance with the principles set out in the Implementation Agreement, which
               principles include that any termination payments will not exceed the amounts which they
               would have been entitled to under the terms of their existing employment contracts, in the
               case of a change of control resulting in their removal or replacement) and (ii) by no later
               than 31 January 2022 there has been compliance with the JSE Listings Requirements in
               relation to the arrangements contemplated in (i) and any necessary approvals of
               Arrowhead shareholders in relation thereto have been obtained;
       4.2.2   by not later than 17h00 on 31 January 2022, the approval of the Fairvest shareholder
               resolutions required to approve and implement the Transaction by the requisite majority of
               Fairvest shareholders is obtained at a meeting of Fairvest shareholders (Scheme
               Meeting);
       4.2.3   by not later than 17h00 on 31 January 2022, the approval of the Arrowhead shareholder
               resolutions required to approve and implement the Transaction by the requisite majority of
               Arrowhead shareholders is obtained at a general meeting of Arrowhead shareholders
               (Arrowhead General Meeting);
       4.2.4   by not later than 17h00 on 31 January 2022, to the extent required under section 115(3) of
               the Companies Act, approval by the court of the implementation of the special resolution
               passed by Fairvest shareholders to approve the Scheme (Scheme Resolution) being
               obtained, and Fairvest not having treated the Scheme Resolution as a nullity (which it may
               not do unless it is agreed by both Fairvest and Arrowhead);
       4.2.5   as at 12h00 on the business day immediately following the last day on which a valid
               demand may be made by a Fairvest shareholder in respect of the Scheme in terms of
               section 164(7) of the Companies Act, Fairvest has not received valid demands from
               Fairvest shareholder/s holding in aggregate more than 1% of all the issued Fairvest
               Shares;
       4.2.6   by not later than 17h00 on 31 January 2022, the providers of debt funding to Fairvest and
               Arrowhead have, to the extent required, provided such consents or approvals, in writing,
               as may be required under the relevant funding agreements in order for the Scheme to be
               effected without triggering any event of default or other potential adverse consequence
               under the relevant agreements;
       4.2.7   as at 17h00 on the date on which the last of the conditions in paragraphs 4.2.1 and 4.2.3
               to 4.2.6 has been fulfilled or, where appropriate, waived, none of the following events shall
               have occurred in respect of Fairvest or Arrowhead —
               4.2.7.1 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
                        shareholders, members, directors or other officers) is taken by any person with a
                        view to –
                         4.2.7.1.1   a moratorium, compromise, composition, business rescue or similar
                                     arrangement with any of its creditors;
                        4.2.7.1.2   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
               4.2.7.2 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;
       4.2.8   by not later than 17h00 on 31 January 2022, all outstanding regulatory approvals legally
               necessary for the implementation of the Scheme have been obtained; and
       4.2.9   by not later than 17h00 on 31 January 2022, the Takeover Regulation Panel (TRP) has
               issued a compliance certificate in relation to the Scheme.

4.3.   Clean-out Distributions

       The intention of the Parties is for the Scheme, should it become operative, to have commercial
       effect as from 1 October 2021 (Commercial Effective Date). To give commercial effect to this
       intention –

       4.3.1   the Scheme Consideration Shares will be issued on the basis that Fairvest shareholders
               that participate in the Scheme will not, in respect of their Scheme Consideration Shares,
               participate in the distributable income of Arrowhead for the period commencing on
               1 October 2020 and ending on 30 September 2021 (the Arrowhead Pre-Effective Date
               Period), but will be entitled to participate in Arrowhead's distributable income for the period
               commencing on the Commercial Effective Date; and
       4.3.2   the Fairvest Shares acquired under the Scheme will be acquired by Arrowhead on the
               basis that Arrowhead will not participate in the distributable income of Fairvest for the
               period commencing on 1 July 2021 and ending on 30 September 2021 (the Fairvest Pre-
               Effective Date Period) but will be entitled to participate in Fairvest's distributable income
               for the period commencing on the Commercial Effective Date.

       Accordingly, in terms of the Implementation Agreement, Arrowhead and Fairvest have agreed that
       each shall effect a cash distribution of its distributable income in respect of the Arrowhead Pre-
       Effective Date Period or the Fairvest Pre-Effective Date Period (as applicable) (each a Clean-out
       Distribution).

4.4.   Change of name

       Subject to the approval by Arrowhead shareholders and the Companies and Intellectual Property
       Commission, Arrowhead will change its name from “Arrowhead Properties Limited” to “Fairvest
       Limited” or the like.

4.5.   Reconstitution of the Arrowhead board of directors and executive team

       The Parties shall take such steps as may be necessary to ensure that, upon the Scheme Operative
       Date, the Arrowhead board of directors (Arrowhead Board) is immediately reconstituted to
       comprise members of each of the existing Arrowhead Board and the existing Fairvest board of
       directors (Fairvest Board), as follows –

       4.5.1   5 of the non-executive directors on the Fairvest Board shall be elected or co-opted as
               directors of Arrowhead;
       4.5.2   3 of the existing non-executive directors on the Arrowhead Board shall remain in office;
       4.5.3   the executive members of the reconstituted Arrowhead Board will include –
               4.5.3.1 Mr Darren Wilder (as chief executive officer);
               4.5.3.2 Mr Jacques Kriel (as chief financial officer),

       or such other composition as may be agreed between the Parties in writing at any time before the
       Scheme Operative Date.

       The Parties have undertaken to procure that all members of the Arrowhead Board and the Fairvest
       Board who are not to serve as members of the reconstituted Arrowhead Board will resign from
       office as directors on the applicable board on and with effect from the Scheme Operative Date.

       Subject to the fulfilment of the Condition Precedent in paragraph 4.2.1, Arrowhead’s existing:

       4.5.4   chief executive officer, Mark Kaplan, will resign as chief executive officer and from the
               Arrowhead Board; and
       4.5.5   financial director, Junaid Limalia, will resign as chief financial officer and, unless appointed
               as non-executive director, from the Arrowhead Board,

       on or before the last day of the month on which the Scheme becomes unconditional. Arrowhead’s
       existing chief operating officer, Riaz Kader and chief investment officer, Alon Kirkel will be retained
       in their current capacities in the merged entity.

5.     Financial effects pertaining to the Scheme

       The pro forma financial effects of the Scheme for Fairvest shareholders, as set out below, are provided
       for illustrative purposes only to provide information about how the Scheme may affect the financial
       performance and financial position of Fairvest, and because of their nature, may not fairly represent the
       financial performance and financial position of Fairvest after the implementation of the Scheme.

       The pro forma financial effects have been prepared in accordance with International Financial Reporting
       Standards, the Guide on Pro Forma Financial Information issued by the South African Institute of
       Chartered Accountants and the JSE Listings Requirements.

       The table below sets out the pro forma financial effects of the Scheme on a Fairvest shareholder based
       on Fairvest’s results for the period ended 30 June 2021. The pro forma statement of financial position at
       30 June 2021 gives effect to the Transaction as if it had occurred on 30 June 2021. The pro forma
       statement of profit or loss and other comprehensive income for the six months ended 30 June 2021 are
       presented as if the Transaction had become operative at the beginning of the relevant period.

                                                       Before the      Pro forma after      Percentage change
                                                        Scheme1          the Scheme2                       (%)
     Basic earnings per share (cents) 3                     11.66               16.29                   39.7%
     Diluted earnings per share (cents) 3                   11.66               16.04                   37.6%
     Headline earnings per share (cents) 3                  12.71               14.67                   15.4%
     Headline diluted earnings per share (cents) 3          12.71               14.43                   13.5%
     Distributable earnings per share (cents) 4             11.47               11.95                    4.2%
     NAV per share (R) 4                                     2.30                2.98                   29.4%
     TNAV per share (R) 4                                    2.30                2.96                   28.9%

     Notes:
     1.   The “Before the Scheme” column has been extracted without adjustment from the results of
          Fairvest for the period ended 30 June 2021.
     2.   “Pro forma after the Scheme” reflects the position after the 100% acquisition of Fairvest and the
          Manco internalisation.
          a.     Included in earnings per share is a gain on bargain purchase calculated at R58.1 million and
                 the Manco internalisation contract cancellation cost of R131.4 million.
          b.     It is anticipated that Arrowhead will not be in a position to recover anything more than the
                 current carrying value of the loans granted in terms of the historic Arrowhead employee
                 share schemes and arrangements in relation thereto, which are carried at the estimated
                 realisable value of the Arrowhead shares held as security for the loans, and therefore no
                 adjustments have been made in this regard.
      3.    Per combined Arrowhead A ordinary shares (AHA Shares) and AHB Shares.
      4.    Distribution and NAV per AHB Share.

6.    Financial information and property specific information

      As required by the JSE Listings Requirements, a separate announcement containing the requisite
      financial information and property specific information in relation to the properties comprising Fairvest’s
      property portfolio as at 30 June 2021 will be released on SENS simultaneously with this announcement.

7.    Independent expert

      The independent board of Fairvest (Fairvest Independent Board), comprising Louis Andrag, Khegu
      Nkuna, Ndabezinhle Mkhize, Jacob Wiese and Trevor Cohen has appointed Mazars Corporate Finance
      Proprietary Limited to act as the independent expert to review the terms of the Scheme and to provide a
      fair and reasonable opinion as required in terms of the Companies Regulations, 2011. The opinion of the
      independent expert will include the report required by section 114(3) of the Companies Act.

8.    Confirmation to the TRP

      Arrowhead has confirmed with the TRP that it has a sufficient number of AHB Shares in order to satisfy
      the Scheme Consideration on implementation of the Scheme.

      Arrowhead has also provided the TRP with an irrevocable confirmation that it has sufficient cash held in
      escrow in order to satisfy the cash payments in respect of fractional entitlements as referred to in
      paragraph 4.1.

9.    Shareholding in Fairvest

      No beneficial interests in Fairvest are held or controlled, directly or indirectly, by Arrowhead.

10.   No concert party arrangements

      Arrowhead is not acting in concert with any other person in relation to the Scheme.

11.   Approvals required by Fairvest shareholders and distribution of scheme circular

      Full details of the Scheme and ancillary matters will be set out in a joint circular which will be distributed
      by Fairvest and Arrowhead to Fairvest shareholders within 20 business days after the date of this
      announcement (or such longer period as allowed by the TRP) which will include, inter alia, the opinions
      of the independent expert referred to in paragraph 7 above, a notice of Scheme Meeting of Fairvest
      shareholders to approve the Scheme and the applicable salient dates and times.

12.   Approvals required by Arrowhead shareholders and distribution of circulars

      The Transaction will constitute a category 1 transaction for Arrowhead in terms of the JSE Listings
      Requirements and accordingly Arrowhead shareholder approval will be required. Full details of the
      Transaction will be set out in a category 1 circular (Category 1 Circular), which will be distributed to
      Arrowhead shareholders in due course, which will include, inter alia, the pro forma financial effects of the
      Transaction on Arrowhead (including on the AHA and AHB Shares) and a forecast statement of
      comprehensive income of the combined entity post the Transaction, a notice of general meeting of
      Arrowhead shareholders to approve the Transaction and other ancillary matters as well as the applicable
      salient dates and times.
      In addition, the Transaction will constitute a reverse takeover of Arrowhead by Fairvest in terms of the
      JSE Listings Requirements, requiring revised listing particulars in respect of the enlarged Arrowhead
      group post implementation of the Transaction. Accordingly, revised listing particulars will be distributed
      to Arrowhead shareholders together with the Category 1 Circular.

13.   Shareholder support

      13.1 Fairvest shareholder support

            The following Fairvest shareholders have provided undertakings of support, in respect of which
            they have agreed to, inter alia, vote all their Fairvest Shares which they own or control in favour of
            the Fairvest shareholder resolutions required to implement the Transaction.

             Fairvest shareholder                                             Number of         % of total issued
                                                                         Fairvest Shares       Fairvest Shares (1)
                                                                                    held
             Vukile Property Fund Limited (“Vukile”)                         140 387 931                     14.2%
             MICC Properties (Pty) Ltd, a subsidiary of Vukile               130 006 881                     13.1%
             Counterpoint Asset Management (Pty) Ltd                         104 787 410                     10.6%
             Stanlib Asset Management (Pty) Ltd                               79 439 019                      8.0%
             Visio Fund Management (Pty) Ltd                                  52 800 000                      5.3%
             Ninety One SA (Pty) Ltd                                          44 574 642                      4.5%
             Cohesive Capital (Pty) Ltd                                       34 837 653                      3.5%
             Catalyst Fund Managers SA (Pty) Ltd                              31 023 859                      3.1%
             Catalyst Fund Managers Alternative Investments                   14 000 000                      1.4%
             (Pty) Ltd
             36ONE Asset Management (Pty) Ltd                                   6 515 986                     0.7%
             Knight Capital (Pty) Ltd                                           4 480 331                     0.5%
             Total                                                            642 853 712                    65.0%

            1.     Total Fairvest shares in issue of 989 246 076 calculated as 1 027 332 675 less 38 086 599 treasury
                   shares.

      13.2 Arrowhead shareholder support

            The following Arrowhead shareholders have provided undertakings of support, in respect of which
            they have agreed to, inter alia, vote all of their Arrowhead shares which they own or control in
            favour of the Arrowhead shareholder resolutions required to implement the Transaction.

             Arrowhead shareholder                   Number of         Number of             Total       % of total
                                                           AHA        AHB Shares        Arrowhead           issued
                                                         Shares             held       shares held      Arrowhead
                                                           held                                           shares(1)
             36ONE Asset Management (Pty)             9 902 379        139 817 420     149 719 799          14.8%
             Ltd
             Vukile Property Fund Limited                      -       114 438 564     114 438 564          11.3%
             Catalyst Fund Managers SA (Pty)           5 546 053        90 050 346      95 596 399           9.4%
             Ltd
             Visio Fund Management (Pty) Ltd                            84 000 000      84 000 000           8.3%
             Counterpoint Asset Management                              27 393 699      27 393 699           2.7%
             (Pty) Ltd
             Ninety One SA (Pty) Ltd                                    20 193 735      20 193 735           2.0%
             Catalyst Fund Managers                                     14 357 152      14 357 152           1.4%
             Alternative Investments (Pty) Ltd
             Knight Capital (Pty) Ltd                           -        2 279 900       2 279 900           0.2%
             Cohesive Capital (Pty) Ltd                                  1 600 000       1 600 000           0.2%
             Total                                    15 448 432       494 130 816     509 579 248          50.2%

            1.    Total Arrowhead shares in issue of 1 014 140 687 calculated as 62 718 658 AHA Shares plus
                  951 422 029 AHB Shares.

14.   Responsibility statements

      The Fairvest Independent Board accepts responsibility for the information contained in this
      announcement insofar as it relates to Fairvest and the Scheme. To the best of the Fairvest Independent
      Board’s knowledge and belief, the information contained in this announcement is true and this
      announcement does not omit anything likely to affect the importance of the information.

      The Arrowhead Board accepts responsibility for the information contained in this announcement insofar
      as it relates to Arrowhead. To the best of the Arrowhead Board’s knowledge and belief, the information
      contained in this announcement is true and the announcement does not omit anything likely to affect the
      importance of the information.

15.   Withdrawal of cautionary announcements

      Post the release of this announcement, Fairvest and Arrowhead shareholders are advised that caution is
      no longer required to be exercised in their dealings in Fairvest and Arrowhead shares.

27 September 2021

Corporate advisor and transaction sponsor to Fairvest
Java Capital

Legal advisor to Fairvest
Werksmans

Independent expert to Fairvest
Mazars Corporate Finance

Sponsor to Fairvest
PSG Capital

Strategic transaction advisor to Arrowhead
Ferryman Capital Partners

Joint corporate advisor and transaction sponsor to Arrowhead
Nedbank Corporate and Investment Banking, a division of Nedbank Limited

Legal advisor to Arrowhead
Cliffe Dekker Hofmeyr Incorporated

Reporting Accountants
BDO South Africa Incorporated

Date: 27-09-2021 02:00:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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