Wheeling and dealing
HARDLY A MONTH goes by without Redefine Income Fund announcing it’s involved in yet another round of merger and acquisition talks. The Madison-managed loan stock company has been on an aggressive growth trail over the past 12 months. Its most recent coup was acquiring Spearhead Property Holdings in a deal worth R1,3bn. The Spearhead takeover pushed Redefine‘s market cap beyond R5bn, making it one of the sector’s five largest counters.
Prior to the Spearhead transaction, Redefine was rumoured to be eyeing a number of other smaller funds including Ambit and Paramount. Now it seems Redefine has its sights on Cape-based property counter CBS Property Portfolio. Earlier this month, Redefine and CBS issued cautionaries on the same day.
Analysts believe that this is no coincidence as Redefine bought a chunk of CBS shares at end-2006. It already owns around 9% of CBS’s issued share capital.
Redefine shareholders will no doubt benefit if such a deal is concluded as CBS’s portfolio – some 48 buildings valued at R1,7bn – is highly rated, with its top 10 properties including Sun International’s head office in Sandton, the Wedge Shopping Centre in Morningside, Sandton and the Palm Grove shopping centre in Durbanville, Cape Town.
Angelique de Rauville, CEO of Investec Listed Property Investments, believes the deal would enhance earnings for Redefine as CBS trades at a slightly higher yield (7,4%) than Redefine’s 7,1%.
Question is: at what price will Redefine pitch its offer? The company will no doubt have to pay a premium to entice CBS founders Ivan Klerck and son-in-law Gary Fisher to part with their shareholdings. De Rauville estimates that Klerck, Fisher and fellow executive directors and former Primegro founders Derek Greenberg and Martin Ettin have a combined shareholding in CBS of around 25%.
Redefine’s continuing merger-and-acquisition drive has already paid off for shareholders, with the fund delivering income growth of 16% in the year to endAugust 2006, compared with a sector average of 12%. Redefine management recently indicated that additional income flowing from the Spearhead portfolio would deliver distribution growth of 18% in the year to endAugust 2007.