A committee of the Botswana Stock Exchange (BSE) has launched an investigation into RDC Properties’ attempted hostile takeover of PrimeTime, with a report due to be released in 30 days.
In the meantime, the offer circular that RDC was scheduled to publish to PrimeTime’s shareholders, has been put on hold, effectively freezing the proposed offer, at least until the BSE makes a decision.
The latest developments are perhaps the most exciting in recent times in the local capital market, which usually ticks along quietly, transactions dominated by the large pension funds and facilitated by asset managers whose employees are on a first-name basis in the small market.
The stakes are high as the two companies are major players in both the property market and on the BSE. RDC has the largest investment property portfolio on the BSE at about P6 billion, located in seven countries, with 26% in Botswana. PrimeTime, meanwhile, has assets of more than P1.7 billion, with 63% of the portfolio in Botswana.
The two firms own landmark assets such as Masa Centre, Lobatse Junction and Pilane Mall and others.
RDC’s portfolio is dominated by retail and hospitality assets, while PrimeTime’s assets are predominantly office and retail. Both groups have a lower exposure to industrial assets.
Bared teeth
According to leading online financial dictionary, Investopedia, by definition a hostile takeover occurs when an acquiring company attempts to take over a target company against the wishes of the target company's management. An acquiring company can achieve a hostile takeover by going directly to the target company's shareholders or fighting to replace its management.
Since at least February, RDC has been making moves to pitch a takeover directly to PrimeTime’s shareholders, a move that the latter’s board has thus far poured water on.
From an initial desire for 50 + 1% equity in PrimeTime, RDC is seeking to snap up at least 44% equity in PrimeTime by offering unitholders (shareholders) 0.6875 RDC units for each PrimeTime unit they hold.
After months of speculation, with the suspense and passive aggressive hostilities apparently contributing to an eight percent drop in PrimeTime’s share price, RDC was finally ready to email its formal offer to PrimeTime unitholders on September 20.
On September 19, however, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) stepped in and froze the process which, according to RDC, was for “reasons unknown”. The BSE, RDC directors said, had approved the offer circular which was due to for emailing.
NBFIRA’s actions were reportedly spurred by a complaint filed by PrimeTime, whose directors are unhappy about the method taken by RDC, the impact on share prices and the reasons being advanced for the takeover.
The BSE’s investigation is being read as a response to NBFIRA’s interventions in the matter. The stock exchange is regulated by NBFIRA.
Parry and riposte
Because both RDC and PrimeTime are listed, the takeover has played out in the public sphere, but also because they are both listed, directors are constrained in how far and when they can comment on matters.
However, when they have spoken out, it is clear PrimeTime’s management is thoroughly unimpressed with RDC’s moves. In particular, directors were unhappy about the length of time RDC took to actually putting numbers to the offer it wanted to make to shareholders.
Prior to RDC unveiling its tentative offer terms, PrimeTime group chair, Paul Masie had told Mmegi that basing the offer on the share price would disadvantage PrimeTime investors.
“Using the share price as a value marker is detrimental to PrimeTime unit holders,” he said earlier this year.
“Sentiment drives share price and the company’s shares have been trading under the threat of a takeover for months which surely must have impacted the price.”
Masie also questioned the rationale proposed by RDC.
“RDC boasts that the aggressive takeover of PrimeTime will provide its unitholders with greater exposure to the residential and industrial sectors.
“How is this possible when PrimeTime has very little industrial assets, and no residential assets whatsoever?
“RDC furthermore argues that the transaction will provide PrimeTime unitholders with exposure to Croatia.
“Certainly, there are much more attractive investment opportunities in Eastern Europe and other offshore platforms that PrimeTime unitholders could consider and not necessarily the ones that RDC is invested in,” he said.
Experts following the proposed deal previously told Mmegi that PrimeTime had come into the gunsights of bargain hunters due to trading at a heavy discount for several years.
“PrimeTime is quite undervalued at the moment, which is a function of the market,” one analyst said.
“You have a high ownership in it by the Botswana Public Officers Pension Fund which holds units and does not trade them.
“Quite often, things get skewed and you look at the price over the past few years, it has been worse than during COVID.
“That has led to the whole attempt to get a hold of PrimeTime and from RDC’s point of view, it’s a great deal that makes sense if they can get away with the price.”
RDC has generally restricted its comments to BSE announcements, with the most recent noting that the proposed move made sense to both RDC and PrimeTime investors.
“The potential transaction is intended to create a significant real estate player of scale in Botswana, support the ability to accelerate organic growth opportunities and leverage the larger asset management and administrative functions as well as unlock potential cost savings and operational efficiencies of the enlarged group.
“The potential transaction is (also) intended to provide immediately improved sector and geographic diversification through the combined group, through greater exposure into the residential and industrial sectors for RDC unitholders, and access to the Croatian market for PrimeTime unitholders,” RDC directors said.
At a recent virtual meeting held for RDC’s interim results, Kgori Capital chief investment officer, Tshegofatso Tlhong, asked whether in reducing its targetted shareholding in PrimeTime to below the level of a majority stake, RDC would be able to work with the PrimeTime board if its offer was accepted.
RDC founder and executive chair, Guido Giachetti, was firm in his response.
“We have proven over time that we are reasonable and we can work in partnerships and we believe that with corporate governance and the right structures in place, there will an alignment.
“If we had that large stake and become perhaps the largest shareholder, we would be able to make sure that we align together, whether we do it through working together or enforcing the right strategies.”
Tasks ahead
The BSE has not commented on exactly what it will be probing in the proposed offer, but analysts expect that the hostile takeover has triggered more debate amongst authorities and regulators on how to handle mergers and acquisitions going forward.
At present, when local rules prove insufficient, the local market takes it cue for merger and takeover procedures in South Africa. In more developed markets such as the United Kingdom, a Takeover Panel would direct the terms of a hostile takeover bid. The UK’s Takeover Panel sprang into the news earlier this year when the world’s biggest mining group, BHP, attempted a $49 billion takeover of Anglo American. The Panel’s PUSU, or Put up or Shut Up rules are designed to prevent companies from dragging out a proposed takeover, which in many cases impacts market sentiment and share prices of the targetted business.
“It’s not going to be business as usual,” a market insider told Mmegi yesterday.
“All those grey areas that we did not think we would ever encounter in the local market; this deal is a wake-up call for regulators.
“This deal is a first in the market and the good thing is that it has shown many areas where there are gaps to be plugged.”
While the BSE committee does its work, the local capital market continues to buzz as the deal of the year nears a final decision.
“There is no way that any investor or analyst in the local market has missed all the updates around this deal,” the insider said.
“The involvement of the BSE and NBFIRA looking at the legal investigations have made the deal even more interesting for the capital market.”
