Hi time for cor­po­rate row

Finweek English Edition - - Companies & Markets - A po­ten­tial 20% hair­cut to the in­come of hold­ers of C units

WE HAVEN’T HAD a de­cent cor­po­rate row this year, so I’m pleased to see that one may be de­vel­op­ing at last. The gen­eral sub­ject is Rede­fine’s bid to con­sol­i­date South Africa’s listed prop­erty sec­tor – in par­tic­u­lar, its plan to ab­sorb ApexHi – and the spe­cific re­lates to the sug­gested price for the most re­cent ad­di­tion to ApexHi’s com­pli­cated cap­i­tal struc­ture, its C units.

At ApexHi’s re­cent re­sults pre­sen­ta­tion, fund man­ager Alan McConochie, who has form in this area, ques­tioned the price for the C units, sug­gest­ing hold­ers of this se­cu­rity would lose out sig­nif­i­cantly in terms of in­come. In its lat­est (De­cem­ber 2008) quar­ter, hold­ers of C units re­ceived a pay­ment of 17,5c, which can be crudely an­nu­alised at 70c. The pro­posed share ex­change terms are 104 Rede­fine per 100 ApexHi C, a much leaner ra­tio than the 202 Rede­fine for ev­ery 100 ApexHi A units and 246,8 Rede­fine per 100 B units.

Rede­fine marginally re­duced its dis­tri­bu­tion in the Novem­ber quar­ter to 13c (13,3c), which an­nu­alises to only 52c, though it ac­tu­ally dis­trib­uted 56,63c/unit in the year to Au­gust 2008. The cut in the Novem­ber dec­la­ra­tion was at­trib­uted to tim­ing dif­fer­ences and in its pre­lim­i­nary state­ment Rede­fine hoped to lift to­tal dis­tri­bu­tion this year by 9% to 11%.

If we al­low a 10% hike that will come out at a dis­tri­bu­tion of 62,3c/unit this year, or about 64,8c on 104 units, al­most 10% less than the his­toric pay­out on ApexHi C units, which can also be con­ser­va­tively ex­pected to grow by around 10% this year.

So there does in­deed ap­pear to be a po­ten­tial 20% hair­cut to the in­come of hold­ers of ApexHi C units, many of whom will in­deed have been at­tracted to the stock by its yield po­ten­tial.

How­ever, the pre­lim­i­nary of­fer doc­u­ments hope the en­larged Rede­fine will dis­trib­ute about 75c/unit this year. That would elim­i­nate the in­come short­fall on ApexHi C units, with an equiv­a­lent of 78c, but im­plies that the merger will per­mit a 30% lift on his­toric pay­out. Is that re­al­is­tic?

I’m not at all sure it is, even though there’ll be a sav­ing of R80m to R90m on the man­age­ment fee ApexHi pays Madi­son, which will be brought in-house, and some­thing sim­i­lar may ap­ply for Rede­fine, though its mar­ket cap is only roughly half ApexHi’s.

So I reckon we’ll hear more about this one. STRUG­GLING TO GET RICH I CAN NO LONGER AF­FORD to read the Lon­don Fi­nan­cial Times daily, but ev­ery now and then I man­age to glance at a copy in one of those plush Jo’burg ho­tels that fur­nish their lounges with copies for the ben­e­fit of guests.

The other day I picked up a thought from a reader’s let­ter in the FT that’s worth pass­ing on. Re­fer­ring to the lu­di­crous bonuses paid to in­vest­ment bankers, the reader was re­minded of the com­ment passed on all the ide­al­is­tic young men who flocked to Wash­ing­ton to work for Franklin Roo­sevelt’s New Deal in the Thir­ties: they came to do good and stayed to do well.

Does that not en­cap­su­late so much of what’s wrong with our own body politic, when even a pro­fessed Com­mu­nist can brazenly ad­mit he joined the strug­gle to get rich?

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