Spearhead Property Holding’s 2,800 plus linked unit holders have reacted positively to the offer from Redefine to merge Spearhead into that group - and the vast majority will probably opt for a straight swap of Spearhead for Redefine shares rather than the 50% cash offer that has been made available, said Mike Flax, CEO of Spearhead.
“The very positive reaction was predictable,” said Flax, “because Spearhead linked unit holders will get a significant premium both on the Spearhead share price at the time of the deal and on the future distributions.”
The deal signed with Redefine by Spearhead, said Flax, will give Spearhead’s linked unit holders 6,18 Redefine units per Spearhead unit and represents a forward distribution in 2007 of equivalent to R2,90 per Spearhead linked unit - a significant increase on the R2,26 per unit expected this year.
“Those investors who bought into Spearhead in anticipation of above average income growth are unlikely to be disappointed with the 2007 results from a merged entity: income, we expect, will grow for Spearhead unit holders by as much as 28%, which is even better than our previous best year in 2005.”
Flax reminded stock watchers that Spearhead was launched on the JSE in 1999 at a price of R10,00 per linked unit - and in that year shareholders had been paid a distribution of R1,05.
“The latest take-out price therefore represents a 300% capital gain and close to 280% growth on the distribution payout.”
This, he said, by his estimate, puts Spearhead shares amongst the top performers for shareholders in the entire Johannesburg Securities Exchange.
Asked if the Redefine group with a portfolio more than double the size of Spearhead’s (which is currently valued at R1,5 billion) will give the same returns on capital as Spearhead was able to achieve, Flax said that Redefine is “very definitely” in a spectacular growth phase and is likely to give double digit returns for the foreseeable future. The merger, he said, will also take out the regional risk factor of Spearhead’s portfolio and give its linked unit holders the security of a diversified national operation which has a significant stake in Hyprop, South Africa’s largest retail property fund and owner of Canal Walk Shopping Centre.
Two factors influencing the merger, said Flax, had been Redefine’s wish to enlarge their Western Cape portfolio and, more pertinently, to make use on a national scale of Spearhead’s now proven flair for innovative development.
16 Spearhead staff will be moving to Madison Property Asset Managers and Flax himself will become Executive Director of this company. Madison, he said, will develop on behalf of Redefine, Hyprop and Apex and is likely to have some R2 billion per annum to invest.
“Thus far,” concluded Flax, “Spearhead shareholders have had every reason to be satisfied with the company’s management and their returns. Looking ahead, I think it is safe to predict that they will have equally good reason to feel that we have made the right move in going for this Redefine/Spearhead merger.”