| Wed 13 Jul 2011, 16:02 | | RIN - Redefine Properties International Limited - Proposed merger and |
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RIN
RIN
RIN - Redefine Properties International Limited - Proposed merger and
withdrawal of cautionary announcement
Redefine Properties International Limited
(formerly Kalpafon Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2010/009284/06)
JSE share code: RIN ISIN Code: ZAE000149282
("RIN" or "the company")
PROPOSED MERGER AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
INTRODUCTION
Linked unitholders are referred to the previous cautionary announcements
released on SENS by RIN, the last of which was released on 22 June 2011, and
to the announcement which was released by Redefine International plc
("Redefine Intl plc"), the AIM-listed subsidiary of RIN, on the Regulatory
News Service ("RNS") of the London Stock Exchange today (a copy of which is
being released simultaneously with this announcement) regarding the proposed
merger ("the proposed merger") between Redefine Intl plc and Wichford P.L.C
("Wichford").
As set out in the RNS announcement, the boards of Wichford and Redefine Intl
plc have reached an agreement on the terms of a recommended all share offer
to be made by Wichford for the entire issued and to be issued share capital
of Redefine Intl plc.
Wichford has made an offer ("the offer") to acquire all of the Redefine Intl
plc shares in issue and to be issued from all of the Redefine Intl plc
shareholders (including RIN) in return for shares in Wichford on the basis of
an exchange ratio of 7.2 Wichford shares ("new Wichford shares") for every
one Redefine Intl plc share held.
Accordingly, if RIN accepts the offer and the proposed merger is implemented,
RIN will dispose of its entire shareholding in Redefine Intl plc
(approximately 82%) in return for a shareholding of approximately 66% in
Wichford (after the cancellation of Redefine Intl plc`s existing holding in
Wichford) ("the transaction"). Wichford will in turn hold 100% of the issued
shares of Redefine Intl plc, thereby creating an enlarged Wichford group
("the enlarged Wichford group").
RATIONALE FOR THE PROPOSED MERGER
The proposed merger will create an enlarged, income-focused property company
with a diversified investment property portfolio. The enlarged Wichford group
would have an improved capital structure benefiting from Redefine Intl plc`s
attractive long term debt facilities as well as the commitment from RIN and
its holding company, Redefine Properties Limited ("Redefine"), to support the
proposed capital raising, as outlined below.
In particular, the boards of directors of Wichford and Redefine Intl plc
believe that the proposed merger represents a clear and strong strategic fit
as well as creating a company with a strengthened financial position, further
details of which will be set out in the circular to be posted to linked
unitholders as soon as practical following publication of this announcement
("the circular").
TERMS OF THE TRANSACTON
In terms of the offer, Wichford has made an all share offer, recommended by
the board of RIN, for the entire issued and to be issued share capital of
Redefine Intl plc at an exchange ratio of 7.2 new Wichford shares for every
Redefine Intl plc share.
On completion of the proposed merger, based on the existing number of
Redefine Intl plc shares in issue, 3 256 million new Wichford shares will be
issued to the shareholders of Redefine Intl plc. Redefine Intl plc`s current
holding of 230.7 million Wichford shares will be cancelled (in accordance
with Isle of Man law which prohibits a subsidiary company from holding shares
in its parent company), subject to confirmation by the High Court of the Isle
of Man, making the net increase in the issued share capital of Wichford 3 025
million shares prior to the proposed consolidation of Wichford`s issued share
capital. In terms of the proposed consolidation it is proposed that every 7.2
shares of 1 pence each in issue in the capital of Wichford or to be issued as
consideration pursuant to the offer, will be consolidated into one ordinary
share of 7.2 pence each. The enlarged Wichford group is therefore expected to
have 4 087 million Wichford shares in issue prior to the consolidation, and
567.6 million Wichford shares in issue after the consolidation.
Wichford has confirmed to the independent board of RIN that it has sufficient
authorised share capital available to settle the consideration payable in new
Wichford shares.
Assuming that the proposed merger becomes effective, the enlarged Wichford
group will change its name to `Redefine International P.L.C.` and will be
admitted on the Official List, within the Premium Segment, Closed Ended
Investment Funds Category and traded on the Main Market for listed securities
of the London Stock Exchange. Application will be made for Redefine Intl
plc`s existing admission to trading on AIM to be cancelled.
Following cancellation of Redefine Intl plc`s current holding of 230.7
million Wichford shares and based on the undiluted issued share capital of
Wichford on 11 July 2011:
- RIN will become the majority shareholder in the enlarged Wichford group
with a shareholding of approximately 65.6%;
- the existing shareholders of Redefine Intl plc (other than RIN), will
hold approximately 14.1% of the issued shares of the enlarged Wichford
group; and
- current Wichford shareholders (other than Redefine Intl plc) will hold
approximately 20.3% of the issued shares of the enlarged Wichford group.
Wichford has reserved the right to waive any of the conditions which apply to
it and, with the consent of the Redefine Intl plc board, to vary any other of
the terms and conditions of the offer, provided that such waiver or variation
is not material in the context of the offer as a whole.
CONDITIONS PRECEDENT AND REGULATORY COMPLIANCE
Wichford`s offer, and accordingly the proposed merger, is subject to valid
acceptances of the offer from the shareholders of Redefine Intl plc
representing at least 90% of the issued share capital of Redefine Intl plc
(RIN`s shareholding of approximately 82% improves the prospects of reaching
this threshold). To date Wichford has received irrevocable commitments to
accept the offer from shareholders (including RIN) holding 89.6% of Redefine
Intl plc`s current issued share capital. The irrevocable given by RIN which
represents 82.3% of the entire issued share capital of Redefine Intl plc is
conditional upon approval of its linked unitholders in a general meeting as
discussed below.
The transaction constitutes an affected transaction in terms of Section
117(i)(c)(i) of the South African Companies Act (Act 71 of 2008) and the
takeover regulations thereto ("the South African Companies Act"), as the
disposal by RIN of its shares in Redefine Intl plc constitute a disposal of
all of its assets, requiring approval by way of special resolution.
Furthermore the transaction constitutes both a category 1 disposal and a
category acquisition in terms of the JSE Listings Requirements, requiring
shareholder approval by simple majority.
The special resolution required in terms of the South African Companies Act
must be adopted with the support of at least 75% of the votes cast by linked
unitholders present in person or by proxy at the general meeting.
As the JSE have ruled that the disposal by the company of its shareholding in
Redefine Intl plc to Wichford is a related party transaction (with Redefine
the identified related party), the validity of the special resolution, for
the purposes of the Listings Requirements, will be subject to a simple
majority of the votes of linked unitholders (excluding the votes of Redefine
and its associates) being cast in favour thereof.
The circular will contain such information as is required in terms of the
South African Companies Act and the JSE Listings Requirements and will
include a notice convening a general meeting in order to pass the special
resolution and all other necessary resolutions of RIN to allow it to accept
the offer, sell all of the shares it holds in the share capital of Redefine
Intl plc to Wichford and to accept the new Wichford shares due to it
(pursuant to the exchange ratio) under the offer.
In addition, both the disposal by RIN of its entire holding of Redefine Intl
plc shares and the acquisition of new Wichford shares as consideration under
the offer requires the approval of the SARB. RIN has sought and obtained such
SARB approval, which was granted by the SARB on Friday, 25 February 2011.
Post implementation of the proposed merger the articles of association of
Wichford and its subsidiaries will be replaced in compliance with the JSE
Listings Requirements.
EXTERNAL ADVICE AND RECOMMENDATION OF THE BOARD OF RIN
The independent directors of RIN ("the independent board") have appointed PKF
Corporate Finance (Proprietary) Limited ("PKF") as an independent advisor to
provide the independent board with external advice as required in terms of
the South African Companies Act and the JSE Listings Requirements.
In this regard PKF has concluded that the terms and conditions of the
transaction are fair and reasonable to the linked unitholders in question.
In addition, the independent board has concluded that the terms and
conditions of the transaction are fair and reasonable to RIN linked
unitholders and recommend that linked unitholders vote in favour of the
transaction.
The content of PKF`s advice and the views of the RIN board will be set out in
the circular.
POTENTIAL CAPITAL RAISING
The enlarged Wichford group is expected, in due course, to seek to raise
equity capital on a fully pre-emptive basis (meaning that the capital will be
raised by offering a fresh issue of shares to all shareholders in accordance
with their pre-emption rights under UK law) to improve the gearing of the
enlarged Wichford group and to assist, inter alia, with the refinancing of
Wichford`s existing debt maturities in October 2012. The board of the
enlarged Wichford group will decide the terms of any capital raising at the
appropriate time, taking into account the interests of the shareholders in
the enlarged Wichford group as a whole. It is currently expected that the
preferred route for a capital raising would involve a fully pre-emptive
equity capital raising at a tight discount to the prevailing mid-market share
price of an issued consolidated Wichford share on the last trading day before
the implementation of a capital raising.
Wichford, RIN and Redefine have entered into a capital raising implementation
agreement in respect of commitments by RIN, as supported by Redefine, in
respect of the capital raising, further details of which will be set out in
the circular.
THE RELATIONSHIP AGREEMENT
In connection with the offer, RIN (as the majority shareholder of Redefine
Intl Plc) and Wichford, in respect of itself and the enlarged Wichford group
have entered into the relationship agreement setting out the governance
arrangements for the enlarged Wichford group.
The relationship agreement contains corporate governance arrangements to
facilitate the independent operation of the enlarged Wichford group, further
details of which will be set out in the circular.
FORECAST FINANCIAL INFORMATION AND UNAUDITED PRO FORMA FINANCIAL EFFECTS
Forecast financial information in respect of the enlarged Wichford group
together with the unaudited pro forma financial effects of the transaction on
the distributable earnings, basic earnings, headline earnings, net asset
value and net tangible asset value of RIN are set out below. The forecast
financial information and unaudited pro forma financial effects include
acquisitions ("the additional acquisition") which were concluded by the RIN
group after publication of its interim results for the six months ended 28
February 2011 and which have not previously been reported on.
FORECAST FINANCIAL INFORMATION FOR THE ENLARGED WICHFORD GROUP
On implementation of the transaction, the financial year end of Wichford will
be changed to 31 August and accordingly the forecast information has been
prepared for the financial year ending 31 August 2011 and the financial year
ending 31 August 2012 (collectively, "the forecast periods") in respect of
the enlarged Wichford group.
The forecast revenue, profit from operations, profit after taxation,
distributable earnings and distributions per share for the enlarged Wichford
group in respect of the forecast periods are summarised below.
Forecast for Forecast for
the year the year
ending 31 ending 31
August 2011 August 2012
(GBP`000) (GBP`000)
Total revenue 35 636 77 039
Profit from operations 31 179 68 703
Profit for the year after taxation 13 919 23 025
Distributable earnings 20 799 24 971
Distributions per share (pence) 4.12 4.40
Actual number of shares in issue 567 643 792 567 643 792
The figures set out above are extracted from detailed forecasts for the
forecast periods that have been reported on by the independent reporting
accountants, KPMG Inc. The detailed forecasts, the independent reporting
accountants` report on the detailed forecasts and the assumptions on which
they have been based are set out in the circular. The detailed assumptions
include, inter alia, the following assumptions in relation to uncontracted
rental income:
- The majority of existing lease agreements are valid. In some cases the
lease agreement has expired and has not been renewed, however the tenant
remains in situ and continues to pay rent. Such revenue is treated as
"uncontracted" revenue for the purposes of the profit forecasts.
Uncontracted revenue amounts to 2.4% of gross rental income for the year
ending 31 August 2011 and 3.4% of gross rental income for the year
ending 31 August 2012. Lease agreements are typically reviewed on an
upwards only basis to either market rents or in some cases an inflation-
linked basis (if higher) at least every 5 years in terms of market
norms.
- Current vacant space has been forecast on a property-by-property basis
and has been assumed to remain vacant unless it is deemed probable that
such space will be let. The vacancy rate is assumed to be 3% for the
year ending 31 August 2011 and 5% for the year ending 31 August 2012.
- In respect of the Redefine Intl plc business, where a lease expires in
respect of existing tenants within the forecast periods, the lease is
assumed to be renewed and the rental income earned is assumed to be the
same as that received under the previous signed lease arrangements. Such
revenue is treated as uncontracted revenue for the purposes of the
forecast. Uncontracted revenue amounts to 2.4% of gross rental income
for the year ending 31 August 2011 and 3.4% for the year ending 31
August 2012. In respect of Wichford business, where a lease expires or
reaches a break in respect of existing tenants within the forecast
period, an 18 month rent free or void is assumed.
UNAUDITED PRO FORMA FINANCIAL EFFECTS ON RIN
The unaudited pro forma financial effects of the additional acquisitions and
the transaction on RIN`s distributable earnings per linked unit, basic
earnings per linked unit and headline earnings per linked unit for the six
months ended 28 February 2011 and net asset value per linked unit and net
tangible asset value per linked unit as at 28 February 2011 are set out
below.
The unaudited pro forma financial effects have been prepared for illustrative
purposes only, to provide information on how the additional acquisitions and
the transaction may have impacted on the historical distributable earnings,
basic earnings, headline earnings, net asset value and net tangible asset
value of RIN. Because of their nature, they may not fairly present RIN`s
financial position, changes in equity, results of operations or cash flows
after the additional acquisitions and the transaction. The unaudited pro
forma financial effects are the responsibility of the directors of RIN and
have been reported on by KPMG Inc.
Unadjusted Unaudited pro Change
before the forma after
additional the additional
acquisitions acquisitions
and before but before the
the transaction
transaction (GBP)
(GBP)
Distributable earnings per linked 2.02 2.05 1.5%
unit (pence)
Basic earnings per linked unit 2.91 2.86 (1.7)%
(pence)
Headline earnings per linked unit 3.91 3.76 (3.8)%
(pence)
Net asset value per linked unit 47.03 47.57 1.1%
(pence)
Net tangible asset value per linked 46.86 47.42 1.2%
unit (pence)
Weighted average number of linked 330 075 365 806 10.8%
units in issue (`000)
Actual number of linked units in 336 575 372 306 10.6%
issue (`000)
Unaudited pro Unaudited pro Change
forma after forma after
the the additional
additional acquisitions
acquisitions and after the
but before transaction
the (GBP)
transaction
(GBP)
Distributable earnings per linked 2.05 2.48 21.0%
unit (pence)
Basic earnings per linked unit 2.86 1.69 (40.9)%
(pence)
Headline earnings per linked unit 3.76 5.58 48.4%
(pence)
Net asset value per linked unit 47.57 40.70 (14.4)%
(pence)
Net tangible asset value per linked 47.42 40.54 (14.5)%
unit (pence)
Weighted average number of linked 365 806 365 806 -
units in issue (`000)
Actual number of linked units in 372 306 372 306 -
issue (`000)
Notes and assumptions:
- The "Unadjusted before the additional acquisitions and before the
transaction" column was extracted from the unaudited condensed
consolidated interim financial statements of RIN for the six month
period ended 28 February 2011.
- For purposes of distributable earnings per linked unit, basic earnings
per linked unit and headline earnings per linked unit, it has been
assumed that the additional acquisitions and the transaction took place
at the start of the six month period commencing 1 September 2010.
- For purposes of net asset value per linked unit and net tangible asset
value per linked unit, it has been assumed that the additional
acquisitions and the transaction took place as at 28 February 2011.
- The additional acquisitions comprise the following transactions, details
of which were published on SENS:
- On 2 March 2011 Redefine Intl plc exercised its option to acquire a
further 35 000 000 stapled securities in Cromwell at a price of
AUD0.7071 per stapled security thereby increasing its interest in
Cromwell from 19.8% to 22.2% ("the Cromwell investment");
- On 6 April 2011 Redefine Intl plc signed an agreement to acquire
all the issued shares in St Georges Harrow Limited ("St Georges")
for an effective purchase price of GBP25 million.
In turn, St Georges concluded an agreement to acquire the St
Georges shopping centre ("the Centre") which is situated in Harrow
in the United Kingdom for a purchase price (after transaction
costs) of GBP68 million("the St Georges transaction"), and
- On 9 May 2011, Redefine Intl plc acquired through its subsidiary,
Redefine Hotels Reading Limited, the Crowne Plaza hotel in Reading
for GBP13.6 million (including transaction costs) ("the Reading
hotel transaction").
The Cromwell investment
- In terms of the Cromwell investment, the cost of exercising the
option was GBP15 million, which has been financed by drawing down a
GBP15 million loan. At 28 February 2011 Redefine Intl plc held a
19.6% (178 833 333 stapled securities) interest in Cromwell.
Immediately after the exercise of its option to acquire, the
interest increased to 22.2%. (213 833 333 stapled securities).
Consequently, Cromwell is now accounted for as an associate, as
opposed to an investment.
- Dividends received from Cromwell totalling GBP3.9 million in the
six month period to 28 February 2011 were reclassified to reflect
the change in accounting treatment of Cromwell as a result of
increasing the investment from 19.6% to 22.2% and Cromwell being
equity accounted as an associate.
- It has been assumed that the interest charge on the GBP15 million
loan for the six month period would have been GBP708,000.
The St Georges transaction
- In terms of the St Georges transaction, the acquisition of the
Centre was partially financed through a loan of GBP41.745 million
at an initial rate of 3 month Libor plus a 2.5% margin. An
interest rate cap was entered into at a cost of GBP1.565 million in
order to cap the 3 month Libor rate at 2.85% per annum.
- The remainder of the purchase price for the Centre of GBP26.2
million was financed out of a loan from Corovest Mezzanine Capital
Limited of GBP16.5 million and cash reserves of the RIN group. The
Corovest Mezzanine Capital Limited loan incurs interest at a rate
of 12.5% per annum and is for a period of 3 years.
- An interest expense of GBP789,000 has been assumed to be incurred,
assuming that the acquisition of the Centre was financed from 1
September 2010 using the rates and amounts described above.
- Historic rental income of GBP1.9 million and historic property
operating expenses of GBP247,000 are assumed to be earned/incurred
for a six month period, assuming that the acquisition occurred on 1
September 2010.
- RIN issued 35 731 00 linked units at a Rand equivalent price of 53
pence per linked unit (being R5.80 translated from South African
Rand to Pounds Sterling using an exchange rate of GBP1.00:R11.00)
raising gross proceeds of GBP18.8 million.
- The proceeds from the issue were used to fund a portion of the
acquisition of St Georges.
- No costs have been assumed to be incurred in connection with the
RIN linked units which were issued to partly fund the acquisition
of St Georges.
The Reading Hotel transaction
- The acquisition was financed through a loan in the amount of GBP7.7
million.
- The loan bears interest at an all in fixed interest rate of 4.83%
per annum, amounting to GBP164,000, assuming that the acquisition
was financed from 1 September 2010.
- Historic rental income of GBP497,000 is assumed to be earned for a
six month period, assuming that the acquisition had occurred on 1
September 2010.
The transaction
- The transaction has been accounted for as a reverse acquisition in
terms of IFRS 3 Business Combinations (2008).
- The statement of comprehensive income of Wichford for the six month
period ended 31 March 2011 was consolidated with the statement of
comprehensive income of Redefine Intl plc for the six month period
ended 28 February 2011, to form the enlarged Wichford group
statement of comprehensive income as at 28 February 2011.
- The statement of financial position of Wichford as at 31 March 2011
was consolidated with the statement of financial position of
Redefine Intl plc as at 28 February 2011, to form the enlarged
Wichford group statement of financial position as at 28 February
2011.
- The non-controlling interest was adjusted to reflect the new
ownership interest of RIN in the enlarged Wichford group reducing
from 82% to 66%.
Transaction costs
- Transaction costs are expected to total GBP5.6 million. As the
transaction involves the issue of new Wichford shares, in terms of
IAS 32 Financial Instruments: Presentation, GBP3.9 million of the
total estimated transaction costs (representing the company`s best
estimate) relate to the issue of equity securities and will be
capitalised. The balance of the estimated transaction costs of
GBP1.7 million will be expensed in accordance with IFRS Business
Combinations (2008).
- No adjustment has been made to distributable earnings, basic earnings or
headline earnings to reflect trading results of RIN since 28 February
2011, Redefine Intl plc since 28 February 2011, nor to reflect the
trading results of Wichford since 31 March 2011.
- Other than transaction costs, all of the adjustments above have a
continuing effect on the consolidated statement of comprehensive income
of RIN.
PROPERTY SPECIFIC INFORMATION AND VALUATION OF THE WICHFORD PROPERTY
PORTFOLIO AND THE COMBINED PROPERTY PORTFOLIO
The Wichford property portfolio comprises 83 properties located throughout
the UK and Continental Europe (five in Germany and one in The Netherlands)
totalling 355 000 square metres (3.8 million square feet), of which all are
within the office sector. The Wichford property portfolio was independently
valued at 31 March 2011 by external valuers at GBP565.7 million.
The weighted average rental per square foot in the Wichford property
portfolio as at 31 March 2011 is GBP11.9 per sq foot.
The combined property portfolio (comprising the property portfolios of RIN
and Wichford) was valued at approximately GBP1.1 billion and consists of 184
properties with an effective GLA of 7.9 million square feet.
The combined property portfolio has been independently valued by Colliers
International UK plc, BNP Paribas Real Estate (Jersey) Limited, Dr Lubke
GmbH, DTZ Debenham Tie Leung Limited, DTZ Eurexi, CB Richard Ellis - PI
Performance, Savills Advisory Services Limited and Jones Lang LaSalle Limited
(formerly King Sturge LLP), all of whom are external valuers.
The sectoral spread of the combined property portfolio is set out in the
table below:
Gross Gross rental
lettable per sector
area per
sector
Office 52% 55%
Retail 29% 29%
Commercial 10% 3%
Car Park/Storage 6% 2%
Hotels 3% 10%
A3/Leisure 0%* 1%
Residential 0%* 0%*
Total 100% 100%
*Less than 1%
The weighted average rental per square foot of the combined property
portfolio as at 28 February 2011 is presented in the table below.
Sector GBP/sq foot
Retail 11.26
Commercial 3.64
Car Park/Storage 3.28
Office 12.23
A3/Leisure 31.55
Residential 6.10
Hotels 34.69
Weighted average total 11.43
The details of the location, rentable area, weighted average rental per
square foot and valuation attributable to each specific property in the
combined property portfolio will be included in the circular.
CIRCULAR AND WITHDRAWAL OF CAUTIONARY
The circular will be posted to linked unitholders as soon as is practical
following publication of this announcement.
Caution is no longer required to be exercised by RIN linked unitholders when
dealing in their securities.
13 July 2011
Corporate advisor, legal advisor and sponsor to Redefine Properties
International Limited
Java Capital
Independent transaction advisor to Redefine Properties International Limited
PKF Corporate Finance (Proprietary) Limited
Independent reporting accountants and auditors to Redefine Properties
International Limited
KPMG Inc.
Date: 13/07/2011 16:02:00 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.
