Potential merger of Arrowhead and Gemgrow and joint cautionary announcement
ARROWHEAD PROPERTIES LIMITED GEMGROW PROPERTIES LIMITED
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
(Registration number 2011/000308/06) (Registration number 2007/032604/06)
JSE share code: AWA ISIN: ZAE000203105 JSE share code: GPA ISIN: ZAE0000223269
(Approved as a REIT by the JSE) JSE share code: GPB ISIN: ZAE0000223277
(“Arrowhead”) (Approved as a REIT by the JSE)
("Gemgrow" or “the company”)
POTENTIAL MERGER OF ARROWHEAD AND GEMGROW AND JOINT CAUTIONARY ANNOUNCEMENT
1. The Transaction
Shareholders of both Arrowhead and Gemgrow (the “Parties”) are advised that their respective boards
of directors (the “Boards”) have, in principle, agreed to a potential transaction which may result in the
reverse takeover of Gemgrow by Arrowhead (the “Merger”).
Gemgrow, a separately listed entity, was established in its current form in 2016, pursuant to a transaction
concluded between its major shareholders, Arrowhead and Vukile Property Fund Limited (“Vukile”).
Arrowhead currently owns 53.3% of Gemgrow.
Since its inception, Gemgrow has successfully grown its property portfolio from c.R4,3 billion to
c.R5,6 billion via pro-actively recycling assets, selling off a number of its smaller assets and acquiring
better quality, larger assets. As a result, Gemgrow’s property portfolio is now more closely aligned with
that of Arrowhead.
The Boards are of the view that there is no longer a clear rationale to retain two separate listings and
believe that, in the current challenging operating environment, a simplified group structure would be
more efficient and create synergistic benefits for all shareholders. In addition to Arrowhead’s support for
the Merger, Vukile, being Gemgrow’s second largest shareholder, has provided an irrevocable
undertaking to support the Merger.
It is expected that Gemgrow shareholders will benefit through improved liquidity, a significantly
enhanced Gemgrow A share cash cover, as well as better future access to equity capital markets to
Post implementation of the Merger, the merged entity will take steps to strengthen its balance sheet by
reducing debt and will continue to explore all available opportunities to unlock value by simplifying its
2. Transaction Overview
It is contemplated that the Merger, if approved, will be implemented as a reverse take-over of Gemgrow
by Arrowhead. This transaction structure has been selected by the Parties so that the merged entity can
continue to leverage off Gemgrow’s dual-class share structure, which remains a valuable differentiator
in the REIT sector, particularly in the context of any potential future industry consolidation.
It is anticipated that the Merger will be implemented on the following salient terms:
- the acquisition by Gemgrow of all of the issued shares in Arrowhead (“Arrowhead Scheme
Shares”), by way of a scheme of arrangement between Arrowhead and its shareholders (“the
Scheme”) in terms of section 114 of the Companies Act, 71 of 2008;
- Gemgrow shall, as consideration for each Arrowhead Scheme Share acquired, issue and allot
0.8237 Gemgrow B ordinary shares, which ratio has been calculated using the forecast
earnings of both Parties, adjusted for certain listed company distributions; and
- an economic effective date of 1 April 2019, resulting in each of Arrowhead and Gemgrow
paying a dividend in the ordinary course of business to their respective shareholders in respect
of earnings available for distribution for the period ended 31 March 2019.
This announcement does not constitute an offer, undertaking or firm intention to make an offer to
Arrowhead shareholders by any party, including by Gemgrow.
3. Irrevocable undertakings
In terms of the JSE Listings Requirements, the Merger constitutes both a Category 1 and related party
transaction for Gemgrow and accordingly Gemgrow shareholder approval will be required.
Vukile, which holds 7.48% of the Gemgrow A ordinary shares and 28.0% of the Gemgrow B ordinary
shares in issue (representing 25.3% of all the shares eligible to vote on the Merger), has irrevocably
undertaken that, if the Scheme is proposed, Vukile will vote in favour of all Gemgrow resolutions
necessary to approve the Merger.
In addition, Arrowhead has irrevocably undertaken to vote its Gemgrow B ordinary shares in favour of
all Gemgrow resolutions necessary to approve the Merger (recognising that a number of these
resolutions will require the approval of a majority of Gemgrow shareholders excluding Arrowhead).
4. Gemgrow corporate governance
In ensuring compliance with appropriate corporate governance Mark Kaplan (CEO of both Arrowhead
and Gemgrow) has recused himself from Gemgrow Board meetings at which the Merger has been
considered. Further, the Gemgrow Board has appointed Nedbank Corporate and Investment Banking
as independent corporate advisor to Gemgrow.
5. Cautionary announcement
Arrowhead and Gemgrow shareholders are advised that discussions between the Parties in this regard
remain ongoing and accordingly, shareholders should exercise caution when dealing in their respective
shares until a further announcement in respect of the Merger has been made.
10 April 2019
Corporate advisor and sponsor to Arrowhead
Investec Bank Limited
Independent corporate advisor and transaction sponsor to Gemgrow
Nedbank Corporate and Investment Banking
Corporate advisor to Gemgrow
Investec Bank Limited
Strategic transaction advisor to Arrowhead
Ferryman Capital Partners
Cliffe Dekker Hofmeyr
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