More MAS action drags value to the fore

The battle for control of Eastern Europe mall owner MAS PLC has taken a fresh turn, with Prime Kapital subsidiary PK Investments (PKI) amending its buyout proposal for the third time in less than six weeks.

In short, PKI, which already owns close to 35% (directly and indirectly) in MAS, has ditched its plans to gain control of the company. However, it still wants the company’s assets to be sold and the proceeds returned to shareholders. MAS shareholders will vote on PKI’s latest proposal at an extraordinary general meeting convened for July 11.

Two ordinary resolutions will be up for approval: authorising the MAS board to initiate a “structured and commercially driven asset realisation” within five years, and returning the net proceeds to shareholders via special dividend payments. The resolutions require a simple majority (50%+1) approval.

This is a departure from what many believed was a brazen plan to gain full control of MAS when PKI first made its intentions public on May 16. At the time, PKI’s proposal entailed a voluntary bid to acquire all the shares in MAS through a complex offer comprising cash and a nonvoting redeemable preference share component.

Since South Africa-based mall owner Hyprop Investments entered the fray on May 26, saying it, too, wants to vie for majority control of MAS, PKI has twice increased its cash offer and amended the terms of its preference share proposal. It’s no surprise that MAS is the subject of a potential bidding war given that it’s become one of the most successful retail developers in Romania.

MAS owns (directly and indirectly) a lucrative portfolio of more than 20 properties, mostly shopping centres, worth a hefty €1.56bn. Prime Kapital, backed by South Africa-born Martin Slabbert, a former CEO and co-founder of Nepi Rockcastle — which is also focused on Central and Eastern Europe — has been credited for much of MAS’s growth since the two formed a development joint venture (DJV) in 2016. At the time, MAS’s portfolio comprised fewer than 10 assets, worth €558m and mostly spread between the UK and Germany. That portfolio has since grown threefold. However, there’s been growing unease about the complex nature and related-party transactions of the DJV, in which Prime Kapital has a controlling stake (60%).

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, which further dented investor sentiment. Recent attempts by MAS to buy out Prime Kapital’s 60% stake in the venture came to naught, placing further pressure on an already weak share price.

South African shareholders in MAS include the Public Investment Corp, Ninety One, Catalyst Fund Managers and Anchor Capital. Fund managers are loath to express their views publicly but there appear to be mixed views on PKI’s latest offer.

Some say it will result in a win-win outcome for everyone. Others are sceptical of PKI’s intentions. A major sticking point appears to be the actual terms of the DJV agreement, given nondisclosure clauses signed by the partners. As one shareholder who wants to remain anonymous puts it: “There has been a breakdown of trust due to a lack of transparency. The situation has become very uncomfortable from a governance perspective.” 

Prime Kapital partner Mihail Vasilescu, who is leading PKI’s proposal, tells the FM that the “noise” around the nondisclosure agreements has understandably created unease among some shareholders. “We are looking at ways to address concerns around transparency and open discussions to help improve disclosure.”

But Vasilescu dismisses the notion that PKI has a grand scheme to gain control of MAS so it can squeeze investors dry and exert undue influence over the MAS board. “We are only interested in unlocking value for all shareholders” — a goal that he believes will be best achieved by PKI’s latest “enhanced value-unlock strategy”.

He says: “Our proposal won’t result in any leakage or twisted incentives for PKI.” He acknowledges that the joint venture structure has been a drag on MAS’s share price, causing the stock to trade at an undeservedly large discount to NAV. PKI estimates MAS’s realisable NAV to be €161c a share (just more than R33) as at December 31. The MAS share price has rallied about 32% since May 16, hitting a seven-year high of R24.65 late last week, pushing its market cap beyond R17bn. Still, MAS trades at a discount to NAV of more than 25%. 

Vasilescu says PKI has engaged with shareholders and the MAS board for some time to find ways to simplify the DJV structure and unlock value. He says PKI’s decision to abandon plans to gain control of MAS comes on the back of sufficient support among other shareholders that value can still be unlocked without PKI increasing its stake in the company. 

“We’ve tried different routes but it has become clear the best way forward is to sell all the assets — both directly held through MAS and those held through the DJV — return the net proceeds to shareholders and unwind the company.”

Vasilescu is confident that MAS’s assets will fetch prices (net of tax liabilities) roughly in line with book value given the quality of its properties and level of liquidity in the Romanian real estate market. In fact, PKI estimates that 14 of MAS’s directly held shopping centres, worth just more than €b1n, could be sold within the next two years. “There are plenty of buyers who have expressed interest in these assets,” he says.

We are looking at ways to address concerns around transparency

—  Mihail Vasilescu

Vasilescu believes an accelerated asset realisation programme would allow MAS to pay out distributions of about €2.23 a share over the next six years. He says under this scenario, the targeted total capital to be returned to shareholders equates to a present value range (June 30) of between €158c and €171c a share, which represents a substantial premium to Hyprop’s indicative valuation of about €89c a share as disclosed in its announcement on May 26. “That highlights the clear and compelling superiority of PKI’s enhanced value-unlock strategy.”

Vasilescu maintains that if MAS continues to trade as a going concern there’s little chance of the NAV gap closing any time soon. He adds that business as usual under a change of control (under Hyprop or any other party) also won’t address the impasse caused by MAS’s investment in the inflexible DJV structure. In a presentation to MAS shareholders last week, PKI gave various undertakings should its proposal be approved on July 11.

One is that the joint venture will resume dividend payments as early as September when MAS releases its results for the year to June 30. This will be a special distribution of €110m — the amount originally intended to finance PKI’s voluntary bid to gain control of MAS. Other undertakings include consulting with MAS shareholders to appoint additional directors or reconstitute the MAS board, and to unwind the DJV five years earlier than planned (March 23 2030 instead of March 23 2035).

In a voluntary trading update this week, the MAS board said in the interest of transparency it will in due course publish “an appropriate summary of the DJV agreement and DJV relationship extension letter” as prepared by MAS’s lawyers in consent with Prime Kapital. It said MAS wasn’t consulted by either PKI or Hyprop on the terms of their potential competing bids for control of the company, hence the board had yet to make a recommendation on either proposal.

The board has now decided to appoint a South African investment bank and an independent corporate adviser to help assess the implications of the potential bids.

Hyprop, meanwhile, appears undeterred in its quest to gain a controlling stake in MAS. Asked by the FM whether PKI’s latest proposal will impact Hyprop’s potential bid for 50%+1 of MAS in any way, CEO Morné Wilken says: “The process on our side is still proceeding.” Hyprop’s voluntary bid will be subject to certain conditions, updates of which will be provided “in due course”, he adds.