Arrowhead and Gemgrow firm up merger


Arrowhead and Gemgrow firm up merger


Published Date: 2019-07-09 | Source: Stephen Gunnion | Author: Stephen Gunnion

Arrowhead and Gemgrow firm up merger

Arrowhead's reverse take-over of Gemgrow is expected to benefit both sets of shareholders and improve liquidity and access to capital markets.

Arrowhead Properties and Gemgrow have reached agreement on the terms of their proposed merger as the two real estate investment trusts (REITs) move to simplify their group structure. The proposed deal, announced in April, is expected to benefit both groups of shareholders.

Gemgrow, previously known as Synergy Income Fund, was formed in 2016 through a series of strategic asset exchanges and acquisitions between Arrowhead, Vukile Property Fund, Cumulative and Synergy. Arrowhead owns about 55% of Gemgrow and Vukile holds about 25%.

Since then, Gemgrow has grown its property portfolio to R5.6 billion from R4.3 billion by recycling assets, selling off some of its smaller assets and acquiring bigger, better-quality ones. As a result, its property portfolio is now more closely aligned with Arrowhead's.

Under the reverse takeover, Arrowhead's shareholders will receive 0.8237 Gemgrow shares for each ordinary share held. If the scheme goes ahead, Arrowhead will then be delisted from the JSE. However, four of its non-executive directors and one executive director, Riaz Kader, will be appointed to the board of Gemgrow, which will be renamed Arrowhead Properties.

The groups said a reverse takeover of Gemgrow by Arrowhead made more sense due to Gemgrow's dual-class share structure, offering both 'A' and 'B' units. They said this was a valuable differentiator in the REIT sector, particularly in the context of any potential future industry consolidation.

Shareholders of both real estate investment trusts need to approve the scheme, which is expected to be finalised by the end of January 2020 at the latest. Vukile, which holds a combination of Gemgrow's A and B shares, has already undertaken to support the transaction.

Arrowhead's shares rose 0.3% to R3.55 yesterday while Gemgrow's A shares closed unchanged at R9.95. Its B shares were also unmoved at R4.75. The announcement was made after the close of trade.


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