In a week marked by mounting tension between rival suitors, the battle for control of JSE-listed MAS PLC — owner of a R32bn Eastern Europe retail-focused property portfolio — has turned increasingly hostile.
Two months ago, MAS became the subject of competing bids from South African mall owner Hyprop Investments and Prime Kapital, a Romania-based developer co-founded by South African investment banker Martin Slabbert.
Slabbert is also a co-founder and former CEO of Nepi Rockcastle, today the largest mall owner in Eastern Europe and the JSE’s biggest property stock, with a market cap approaching R100bn. Slabbert, together with several other directors, left Nepi in 2015 to form Prime Kapital, which then became MAS’s development partner. Today, Prime Kapital (with its various associate parties) owns about 35% of MAS.
It’s no surprise that MAS, which is domiciled in Malta, is a takeover target. It has become one of the most active retail developers in Romania, with a lucrative portfolio of about 20 shopping centres and several residential developments worth a hefty €1.56bn.
Yet MAS is trading at a 40% discount to its NAV of close to R37 (at this week’s share price of about R22). Since the Prime Kapital parties announced its intentions to stage a buyout of MAS in mid-May via a combined cash and preference share structure, it has amended the terms of its proposal several times. But it has yet to make a formal offer to shareholders.
In contrast, Hyprop announced a formal voluntary bid to acquire 50%+1 in MAS two weeks ago. But last week Hyprop unexpectedly withdrew from the race for MAS, shortly before its five-day offer period to shareholders closed.
Had Hyprop’s takeover action been successful, it would have nearly tripled the value of the South African mall owner’s R12bn footprint in Eastern Europe to about R30bn.
Hyprop’s R38bn retail portfolio is split 68/32 between South Africa and Eastern Europe and includes some of the most visited shopping centres in South Africa, including Rosebank Mall in Joburg and Canal Walk in Cape Town. It also owns four malls in Croatia, Bulgaria and North Macedonia.
Hyprop cites the MAS board’s “lack of transparency” as the sole reason it walked away from the transaction. Hyprop’s claims centre on the board’s refusal to share the full extent of the confidential agreements that govern the development joint venture (DJV) formed between MAS and Prime Kapital in 2016.
Several retail centres and residential developments are held in the DJV, in which Prime Kapital has a 60% stake while MAS owns 40%.
Back in 2016 when the DJV was created, MAS’s portfolio was worth €558m and was spread mostly between the UK and Germany. That portfolio has since grown threefold and is now primarily in Eastern Europe.
Though Slabbert is credited for much of the early success of Nepi Rockcastle and subsequently for positioning MAS as a key Eastern Europe retail player, there’s been growing unease about the complex nature and related-party transactions of the DJV.
Investor sentiment soured when MAS was forced to suspend dividends two years ago due to a difference of opinion with Prime Kapital regarding distribution payments owed to MAS by the DJV.
Recent attempts by MAS to buy out Prime Kapital’s 60% stake in the DJV came to naught, placing further pressure on an already weak share price.
MAS published an 18-page summary of the DJV agreements, compiled with the help of law firm Webber Wentzel, in early July. But Hyprop CEO Morné Wilken argues that the summary isn’t sufficient to determine the exact nature and terms of the relationship between MAS and Prime Kapital.
Wilken says: “We can’t run blind into a burning house, given the potential risk relating to the DJV. We said from day one that having access to the full DJV agreement is critical to ensure we dot all our i’s and cross all our t’s.”
He adds that given that the DJV accounts for almost 50% of MAS’s net assets, it would be irresponsible of Hyprop to proceed with its bid without verifying the actual source agreements.
Wilken argues that it makes no sense for the board to cite confidentiality as the reason it cannot provide Hyprop — and shareholders — access to the full DJV agreements. Yet they have published a full summary, which he says suggests the agreements can no longer be considered confidential. “It raises a lot of suspicion,” he says.
Wilken says Hyprop’s offer “got good traction” in the first few days but concedes that it was unlikely to achieve the required 50%+1 support from MAS shareholders, given widespread shareholder fatigue that set in as corporate action dragged on.
Hyprop’s bid was no doubt also thwarted by calls from Slabbert, who last week urged MAS investors to reject what he claimed was a “value-destructive offer with a questionable structure”.
Slabbert said Hyprop’s “purported” offer was not only unattractively priced but also raised “significant governance and regulatory red flags”.
He claimed Hyprop’s offer would not be a genuine acquisition, but was an attempt to secure control without paying for it. “The offer is not a bona fide attempt to acquire MAS shares, but rather a cleverly disguised request for MAS shareholders to grant Hyprop free options to acquire their shares at a future date — and at a price far below market value, intrinsic value and competing offers.”
He also accused Hyprop of using the DJV contract to create doubt in investors’ minds regarding the integrity of the Prime Kapital leadership.
Slabbert said Hyprop blaming the nondisclosure of the full DJV contract as the reason for terminating its bid is “disingenuous”. He believes Hyprop walked away because it became clear it wouldn’t garner enough support from independent shareholders to breach the required 50% threshold.
But Wilken dismisses Slabbert’s claims as an effort to distract shareholders from the root cause of MAS’s problems. He tells the FM there was nothing sinister about Hyprop’s bid structure. “It was very straightforward and transparent.”
Wilken adds that the conditions Hyprop set for the offer to become binding was about mitigating risk related to the DJV and securing the necessary regulatory approvals in Malta, South Africa and Eastern Europe.
Rejecting the notion that Hyprop’s bid significantly undervalued the company, Wilken says: “I still believe we put a fair offer on the table.” He says Hyprop used the share price values of both MAS and Hyprop in the run-up to the formal offer to determine the swap ratio, adding that Hyprop’s cash consideration of R24 is a 32.6% premium to the 30-day weighted average at which MAS traded before Hyprop made its bidding intentions known and comfortably above the R22 at which MAS was trading late last week.
Wilken argues it’s not a fair assessment that NAV should be used as a point of departure to determine a swap ratio. “There’s a reason why MAS is trading at such a big discount. The DJV structure has created huge risk and uncertainty. In addition, MAS hasn’t paid dividends for two years.’’
Wilken also rejects Slabbert’s allegations that the voluntary bid raised governance issues. “We adhered to all required regulatory and corporate governance procedures.”
He believes the real question shareholders should be asking is why MAS is in its current predicament and who caused it. He says it appears that Prime Kapital now effectively wants to use money, given by MAS to the DJV to fund developments, to instead gain control of the company. “You cannot do that under South African law.”
He asks how is it that the DJV couldn’t afford to pay the coupons (interest) on its MAS preference shares, which effectively forced MAS to stop paying dividends, yet the same party that controls the DJV says it can now raise €220m to buy out shareholders.
Wilken says while Slabbert is “talking a good game”, he hasn’t yet put an official offer to shareholders. “Why not?”
Asked about the likely timing of a formal offer, Slabbert tells the FM that Prime Kapital is in the process of obtaining the regulatory approvals. “We anticipate being able to formalise our offer soon.”
Slabbert reiterates that Prime Kapital is close to securing R4.75bn in liquidity, which can be used to significantly increase the cash component of its voluntary bid; alternatively, it will consider making a substantial cash distribution to enable MAS to resume dividend payments to shareholders as early as September.
Prime Kapital’s original plans, made public on May 16, entailed a voluntary bid to acquire all the shares in MAS through a complex offer comprising cash and a nonvoting redeemable preference share component. The aim was essentially to sell MAS’s assets and wind up the company.
Since Hyprop started sniffing around, Prime Kapital has twice increased its cash offer and amended the terms of its preference share proposal. But in early July, it ditched its plans to gain control of the company and called for an extraordinary general meeting where shareholders had to vote on two resolutions: to authorise the MAS board to initiate a “structured and commercially driven asset realisation” within five years, and to return the net proceeds to shareholders via special dividend payments. The resolutions weren’t passed, narrowly missing the required majority (50%) approval.
Slabbert still believes Prime Kapital’s proposal to sell MAS’s assets and return the proceeds to investors is the best way to unlock value for all shareholders. He denies claims that Prime Kapital is out to gain control of MAS so it can squeeze investors dry and exert undue influence over the MAS board.
He adds that Prime Kapital continues to engage with fellow shareholders in MAS on the best course of action. “We will not act in a way which makes fellow shareholders uncomfortable.”
Meanwhile, institutional shareholders have also entered the fray, rallying together in a bid to overhaul the MAS board as frustration grows over governance issues and perceived questionable decision-making.
The investor bloc, which together owns 17.6% of MAS shares, is made up of nine heavyweights including Ninety One, Stanlib, Meago, Sesfikile Capital, Catalyst Fund Managers and M&G Investment Managers.
They have asked MAS to convene an extraordinary general meeting, which has now been set for August 27. Shareholders will be asked to vote on several proposals, including one to replace two board members — Mihail Vasilescu and Dan Pascariu — who are said to have a conflict of interest due to their long-standing ties with Prime Kapital.
The investors have secured consent from four local big guns to replace Vasilescu and Pascariu, including retired property stalwart Des de Beer, co-founder of the Resilient group, Nepi Rockcastle and Western Europe-based Lighthouse Properties.
Other new board candidates proposed by institutional investors are Robert Emslie, retired CEO of Absa Corporate & Business Bank and former head of Absa Corporate & Merchant Bank; investment banker Sundeep Naran, nonexecutive director at the Spar group and an independent credit and risk committee member at Sanlam Specialised Finance; and Stephen Delport, also from the Resilient group and former CEO of Lighthouse.
In a letter to the board, the institutional shareholders voice their discontent with the way the MAS board has dealt with the two competing bids.
“The board has not made its views known to any extent on the buyout proposals from Prime Kapital or Hyprop except via Sens announcements. MAS has essentially been no more than a conduit to market for dissemination of communications received by it.”
The letter goes on to say that the slate of proposed new board members is entirely independent with no interest in MAS, and is well positioned to advance the interests of the company and all its stakeholders.
The letter raises concern regarding the nondisclosure of several terms of the DJV, among others the development margins earned by the DJV, and the DJV being allowed to deploy capital allocated for developments to buy shares in MAS.
“We query why this decision was not put to MAS shareholders for approval? When did it became apparent to the board that the DJV, or its wholly owned subsidiary, with financial assistance from MAS, intended to utilise this MAS-approved revised mandate to acquire a controlling shareholding or even all the issued shares in MAS?”
The letter reads: “In our view, given the history and context, MAS should make available to the public all documents necessary to understand in full the DJV agreements and the extraordinary situation that, with the financial assistance of MAS, the DJV has acquired a material shareholding and has proposed to acquire a controlling shareholding or all issued shares in MAS.”
The letter also refers to the unsuccessful attempts by MAS to repurchase Prime Kapital’s 60% stake in the DJV in March, which was apparently abandoned after shareholders raised concerns about MAS planning to effect the buyout at what they believed was a highly inflated price.
One of the institutional shareholders, who wants to remain anonymous, says it’s becoming increasingly clear that “either board members don’t know what they are doing, or they are conflicted.” He adds: “MAS has been hamstrung by poor decision-making and disclosure over many years, which has made everyone very uncomfortable.”
Garreth Elston, MD of equity research firm Golden Section Capital, believes the upcoming extraordinary general meeting is now the most credible route for MAS to regain oversight. “Institutional shareholders want independent directors who are unconflicted, credible, and capable of interrogating the DJV, its economics, and MAS’s strategic options. The call is for transparency, independence and flexibility.”
Elston believes both Prime Kapital and Hyprop’s offers undervalue MAS. He argues that most shareholders now see better value in fixing MAS’s lingering governance issues to narrow the large discount to NAV “rather than becoming subordinate to a partner with disproportionate influence”.
But whether institutional investors’ proposed reconstitution of the MAS board will indeed be put to the vote on August 27 — and receive the 50% threshold approval — will depend on if and when Prime Kapital tables a formal buyout offer to shareholders.
If Prime Kapital succeeds in pushing up its 35% stake to 50% before August 27, it will be able to dictate who sits on the board. Industry players say getting to 50% won’t be a huge stretch, as there are independent shareholders who support Prime Kapital’s proposal to sell all the company’s assets, redistribute the proceeds to shareholders and wind up the business.
Brendon Hubbard, portfolio manager at boutique asset manager ClucasGray, believes Prime Kapital’s proposal is the fairest and simplest route to “unlock value for all shareholders and allow everyone to go their separate ways”.
He says the back-and-forth mudslinging has resulted in some shareholders now looking for a clean exit.
Referring to Prime Kapital’s estimates that asset sales over the next few years could realise net proceeds for shareholders equivalent to about R46 a share, Hubbard says that’s attractive as it is more than double the R22 at which MAS is now trading.
Still, Hubbard believes it’s possible a compromise could be negotiated between Prime Kapital and institutional shareholders over the next few weeks.
While the outcome remains uncertain, the extent to which the JSE is protecting the rights of South African shareholders — especially those of foreign listings — has also come under scrutiny.
Hyprop and institutional investors have asked the JSE to intervene to force MAS to disclose information about the DJV agreement. They have not had much luck.
Responding to the FM’s questions on the matter, Andre Visser, the JSE’s director of issuer regulation, says while the JSE was indeed approached by Hyprop, it is incorrect to say that the JSE did not intervene. “The JSE engaged with both Hyprop and MAS PLC but the JSE could not impose an obligation on MAS PLC to make the joint venture agreements available.”
He says that’s because the proposed transaction is not governed by the JSE listings requirements. Visser notes that the JSE’s powers and functions are circumscribed by the provisions of the Financial Markets Act 12 of 2019 (FMA), an important one of which is the adoption and enforcement of the JSE’s listings requirements.
“The JSE is not empowered to enforce or impose obligations not expressly contemplated by the listing requirements, as this would offend against the important principle of legality which requires the JSE to act lawfully and within the bounds of its authority as recorded in the FMA.”
Visser says any accusation that the JSE is not being proactive enough to protect shareholders of listed companies is “far off the mark”. He adds: “The JSE has a hard-earned reputation of very high regulatory standards that provide high levels of protection to shareholders. The JSE’s listings requirements are aligned with international standards and in many instances are above those standards.’’
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