Exasperated shareholders in Safari Investments have accused the mall owner of frustrating a recent cash takeover bid in order to protect directors’ jobs — and to continue milking the company after a history of questionable related-party deals.
In March Safari’s board was quick to consider a friendly merger with listed shopping centre owner Fairvest — pitched at R4.30 a share. But it has dragged its heels over a higher-value cash offer received in July from ComProp, an unlisted group which is part of the Futuregrowth Asset Management stable.
ComProp’s R5.90 per share bid offer is a premium to Safari’s present trading price of R4.80, but would likely lead to a delisting and management overhaul.
That, says share activist Albie Cilliers, would end a related-party dealmaking bonanza that began in 2013 and continued after Safari listed in 2014.
"The total last seven years of business with insiders and related parties amounts to R1.6bn," says Cilliers, who also argues that Safari only listed in order to access "cheap capital" and enjoy the tax benefits conferred on SA’s real estate investment trust (Reit) sector.
Reit dividends, for example, are taxed in the hands of shareholders instead of the company. SA Reits are obligated to pay at least 75% of their distributable earnings as dividends, and many companies routinely pay out 100% of earnings to shareholders.
What’s puzzling for some is the alacrity with which Safari backed Fairvest’s offer, notwithstanding the fact that the R4.30 all-share deal was a considerable discount to Safari’s stated NAV of about R7.23 a share, as per its financial results to end-March.
The board — chaired by JP Snyman — favoured the share swap as a merged entity that would remain listed but be larger and more liquid.
The two companies both own shopping centres which serve the working class in peri-urban and rural areas, and management of both said they could benefit from synergies.
Safari then failed to make public the ComProp offer at all.
Safari’s AGM, held on August 7, is a strange case in point: the board refused to discuss the merits and problems of either offer; Snyman stopped chairing the meeting a few minutes into it; and Chris Logan, COO at Opportune Investments, and Cilliers, investment manager at Cilandia Capital, were constantly shot down.
Later that month, Safari’s board said it had received letters from a quarter of shareholders opposing the ComProp bid, though it has refused to release these letters, despite Logan’s — and ComProp’s — requests.
While Fairvest’s offer has now been shelved, Safari is still "engaging" with the ComProp bid under an independent board chaired by Allan Wentzel.
The board maintains that the legal terms of ComProp’s proposals, "if put in their present form, could give rise to unnecessary risks to Safari shareholders of the deal failing, even if approved by Safari’s shareholders", says Wentzel.
ComProp, for its part, says it is "concerned that the actions of the board are denying Safari shareholders an opportunity to properly consider the ComProp offer".
Chris Segar, an investment manager at Ivy Asset Management, takes an equally dim view of Safari’s actions.
"What is perplexing here is that Safari’s board, in their assessment, provided a fair and reasonable valuation of their company at an effective R4.30, but they chose not to give a fair and reasonable opinion on the ComProp offer, which was far superior price-wise," says Segar.
"How can this be seen as consistent?"
Segar also wants to see those letters, which he argues have effectively blocked ComProp’s bid.
"It has been alleged that some of the blocking shareholders have business dealings with Safari as related parties. Would it not have been prudent for the board to advise these shareholders to abstain from voting on takeover offers?" he says.
The water is muddied even further by the fact that a BEE firm called Southern Palace Capital took loans to buy a fifth of Safari at R7.60 a share in 2017.
Given the hammering Safari’s shares have taken — they’re down 43% since listing at R8.50 in 2014 — those loans are considerably underwater.
Safari’s board has said that the Southern Palace shareholders will abstain when voting for or against the ComProp deal.
Safari CEO Dirk Engelbrecht denies that its directors are motivated by the prospect of losing their jobs.
"A change in the board from being established in line with a listed public company to that of a wholly owned subsidiary is inevitable in any transaction of this nature," he says.
And he says historical contracts with related parties have been unwound, or are in the process of unwinding, in the interest of good corporate governance while "appreciating the fact that this has been the origin and the organic path to the Safari we are today".
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