Bidding war for Fountainhead Property

The bidding war between Redefine (RDF) and Growthpoint (GRT) that started on Tuesday for Fountainhead Property Trust’s portfolio — less than three months after Redefine acquired Fountainhead’s management company — will direct the Financial Services Board (FSB) and the industry into “unchartered territories”‚ according to analysts.

Fountainhead’s share price ended 4.1% higher at R8.43 on Wednesday‚ after Growthpoint‚ the JSE’s biggest property company with a market capitalisation of about R44bn‚ made an offer for Fountainhead’s R10.3bn portfolio — at an 8% to 10% premium on the offer that Redefine had already made.

Redefine began negotiations for Fountainhead’s properties in August after buying its management company for R660m.

Grindrod Asset Management’s chief investment officer Ian Anderson said Growthpoint’s proposal would have to be referred to the FSB‚ which would have to determine what it thought was a fair outcome‚ given that acquisitions usually covered both the management company and the fund.

“It would be interesting to see whether or not the FSB would like to set a precedent that would allow the acquisitions of funds which bypassed management companies‚” Anderson said.

Should the Growthpoint offer be allowed to go through‚ the FSB may well insist on some form of compensation for Redefine’s acquisition of the management company‚ in order to discourage this type of transaction in the future‚ he said.

Growthpoint’s offer was “significantly better” than Redefine’s‚ at a premium of 8% to 10% depending on the company’s share prices‚ although the investors in Fountainhead‚ Growthpoint and Redefine were all largely the same and the deal could be a “zero sum game” for investors.

Investors would have to decide from where the most value could be extracted‚ Anderson said.

MD of Catalyst Fund Managers‚ Andre Stadler‚ said Catalyst had always been unhappy with Redefine’s offer‚ and while Growthpoint’s offer was a “step in the right direction”‚ Fountainhead’s portfolio was still worth more.

The FSB would have to decide whose interests it was in place to protect — the management company or the unitholders‚ Stadler said.

The “untested” situation had opened a “very healthy debate”‚ which could change the thinking of whose interests the FSB should protect.

Fountainhead’s management company said on Wednesday that it would consider the proposals by Growthpoint and Redefine.

“There are a number of regulatory and commercial issues to be finalised before Fountainhead Property Trust Management can revert to unitholders in relation to the relative merits of the proposals‚” it said.