Aton is likely to stick to its guns over M&R offer

The Murray & Roberts (M&R) share price has dipped below the R17 that Aton has offered shareholders, indicating that shareholders are not holding out much hope that Aton will be pressured into increasing its offer any further.

The two issues that have contributed to the recent price decline are Aton’s rather inspired decision to buy a 25.4% stake in Aveng, enabling it to block the proposed tie-up with M&R, and the Takeover Special Committee’s (TSC’s) prohibition on that proposed tie-up.

There have been many twists and turns in this transaction, so it’s tempting fate to suggest that the independent board of M&R have now run out of defence options, but it is difficult to imagine what more they could do to secure the R20-plus they claim M&R is worth.

With enough time and resources the independent board might have been able to put up a reasonably spirited challenge to the ruling by the takeover council.

The board evidently wasn’t happy about the ruling, but noted it had “resolved not to take the TSC’s decision on review at this time and continues to reserve its rights in this regard”.

It was a rather interesting ruling given that the committee itself acknowledged that “there is no evidence upon which the TSC can rely which clearly demonstrates that the potential Aveng transaction was ‘designed’ to frustrate the mandatory offer and should be prevented”. The TSC then goes on to list a broad range of issues to defend its ruling. It has set a precedent that may be challenged in future transactions.

News of the 20%-plus increase in earnings expected for the year to end-June is good news for Aton, if not for all the other M&R shareholders.

Emira Property Fund CEO Geoff Jennett was considered an uninspiring choice to lead the middle-sized real estate investment trust when he was appointed in September 2015. Although he had been Emira’s financial director, critics felt he was too inexperienced for the CEO position and were expecting a seasoned property veteran to take the reins.

At the time, Emira was struggling with a high vacancy factor and many thought there was too much bias towards Gauteng offices in the group’s portfolio.

Some of its properties were tired and fund managers questioned why Emira had not made any attempt to invest offshore and diversify income streams.

Fast forward to nearly three years later and it looks as if his critics will have to eat their words. Jennett and his team have transformed Emira into an attractive diversified company that has also received a rerating from the market.

In fact, while most listed property counters have experienced a subdued year as far as share price performance is concerned, Emira is up 17% year to date. Its total portfolio vacancy is also significantly lower at 3.4% compared with 5.7% at the end of 2017. It has also streamlined its portfolio and reduced its exposure to offices.

And while its competitors have all rushed into Western and Eastern Europe, Emira has become the first SA player to enter the US market, having partnered with an American property fund that owns outdoor shopping centres with promising potential.