10 SEPTEMBER 2019
In an open letter to the board of Safari Investments (“Safari”) released on SENS today, the directors of the unlisted property fund Community Property Company (“Comprop”) expressed their frustrations at the recent unresponsive conduct of the Board of Safari (“Safari Board”) in relation to the Comprop R1.8 billion all cash offer for the company. This frustration over the conduct of the Safari Board mirrors similar concerns raised by Safari shareholders at the recent AGM who believe their rights are being compromised.
Back on the 19th July 2019, Comprop met with representatives of and advisors to Safari to present a firm intention all cash offer to acquire the entire issued share capital of Safari at a price of R5.90 per Safari share (“Comprop Offer”). Rand Merchant Bank (“RMB”) provided the cash confirmation in respect of the Comprop Offer and the offer was supported by five legally binding irrevocable undertakings from Safari’s largest shareholders representing 55.7% of the issued share capital of the company. At the time, the Safari Board had proposed a friendly merger with Fairvest Property Holdings Limited (“Fairvest”) and was engaging with Fairvest on the implementation of the merger.
The Comprop Offer represented a 38.8% premium to R4.25, being the clean price per share as at 18 July 2019 and a 42.2% premium to R4.15, being the implied clean offer price per share in the proposed merger between Fairvest and Safari on an implied swap ratio of 2.22 Fairvest shares for each Safari share.
Following the meeting of 19 July 2019, Comprop engaged with Safari, through its advisors, on several occasions to understand why the Comprop Offer was not announced, especially after the announcement of termination of the Fairvest transaction. The Safari independent board (“Safari Independent Board”) was reluctant to proceed with the publication of a Firm Intention Announcement (“FIA”) on the basis of receipt of a number of non legally binding letters of intent (“Letters of Intent”) to vote against the Comprop Offer, received from a few small Safari shareholders either holding or purporting to represent shareholders collectively holding in excess of 25% of the voting rights in Safari. The Safari Board had been engaging with these shareholders on the Comprop Offer.
In response, Comprop advised the Safari Board in writing on 16 August 2019 that
- it believed it to be inappropriate for the Safari Independent Board to canvass Safari shareholders as to how they would vote on the Comprop Offer prior to having appointed an independent expert and having obtained independent advice as to whether the Comprop Offer was fair and reasonable to Safari shareholders (“fairness opinion”);
- in Comprop’s opinion (and that of a significant number of Safari’s shareholders) Safari should publish the FIA without any further delay and should work together with Comprop to issue a scheme circular to Safari shareholders, which would include an appropriate and considered view of the merits of the Comprop Offer and would give shareholders the right to fully evaluate the Comprop Offer and ultimately exercise their right to vote on the Scheme. If, during this process, it became clear that in excess of 25% of Safari’s shareholders were not in support of the Scheme, then Comprop would agree that it would be appropriate to cancel the Scheme meeting; and
- it was concerned that publication of a FIA had been delayed as a consequence of the Safari Independent Board’s unsubstantiated belief that in excess of 25% of Safari shareholders may vote against the Scheme.
The Safari Board has been requested by its shareholders to publicly disclose the Letters of Intent on Safari’s website, like Safari has done with the irrevocable undertakings obtained from Safari shareholders by Comprop, in order to enable those Safari shareholders wanting to engage on the Comprop Offer to do so meaningfully. Comprop believes that the Letters of Intent are not legally enforceable and thus do not constitute sufficient grounds for the Safari Board not to proceed with the publication of a FIA. Comprop is therefore highly supportive of the disclosure of the Letters of Intent and any Safari shareholder engagement that may result from such disclosure.
Comprop believes that the Comprop Offer would enable Safari shareholders to unlock significant value at a price level in excess of that which they are likely to otherwise attain in the medium to long term by remaining invested in Safari. In Comprop’s view, Safari shareholders are likely to lose in excess of R500 million in value should this occur (being the differential between the offer price of R5.90 and the Safari clean share price prior to Fairvest transaction being announced).
Comprop remains frustrated by the Safari Board’s current position in respect of the Comprop Offer and is concerned that the actions of the Safari Board are denying Safari shareholders an opportunity to properly consider the Comprop Offer (as would be set out in detail in a Scheme circular, including an opinion from an independent expert as to the fair and reasonableness of the Comprop Offer) and to cast a considered vote at the Scheme meeting.
Comprop’s concern and frustration is exacerbated by the fact that the Safari Board showed no hesitation in openly supporting the Fairvest transaction in an announcement on SENS on 1 July 2019, despite this being at an effective price of R4.15 per Safari share. Comprop finds it perplexing that the Safari Board could propose a transaction at R4.15, but not propose the Comprop Offer at an effective R5.90.
In light of the above, Comprop believes that the Safari Board should honour its shareholders’ request to make the Letters of Intent available to all Safari shareholders who should be afforded due time to consider the Letters of Intent, as well as time for the aforementioned Safari shareholder engagement to occur. Safari would be expected to announce the FIA, failing which Comprop will consider the withdrawal of the Comprop Offer, which may result in significant losses to all Safari shareholders.