SOUTH AFRICA – Growthpoint Properties Limited, the largest property investment holding company in South Africa has made a US$200m (around R2.9 billion) offer for a 51.2% controlling stake in small-cap UK property fund Capital & Regional.

The bid, made up of a partial cash offer to existing shareholders and a subscription of new shares in Capital & Regional, was announced in a statement on the London Stock Exchange (LSE) and the JSE.

According to the statement, the directors of both groups have reached agreement on what they describe as “a recommended substantial investment by Growthpoint in Capital & Regional”.

CEO confident offer will be accepted, and deal finalised by December, reported Money Web.

Growthpoint is offering existing Capital & Regional shareholders 33 pence in cash per share, which represents a 100% premium to the struggling UK counter’s share price on September 10.

It wants to acquire 219 786 924 shares through the cash offer, which will represent around 30.3% of Capital & Regional’s current ordinary shares in issue.

“The partial offer and the share subscription are inter-conditional,” the group said in its LSE statement. “On completion of the proposed transaction, Growthpoint will hold approximately 51.2% of the enlarged issued ordinary share capital of Capital & Regional.”

Growthpoint group CEO Norbert Sasse said that in addition to the support of the Capital & Regional board, it also has strong support for the deal from several of the UK fund’s major shareholders.

This includes South African property investment tycoon Louis Norval, who holds around a fifth of Capital & Regional’s shares.

Commenting on Growthpoint’s bid, Reitway Global’s chief investment officer Garreth Elston says he is currently not convinced that Capital & Regional will be “GOZ 2” for Growthpoint – in reference to Growthpoint’s first offshore foray into Australia over a decade ago, which has been a boon for the SA fund.

Elston added: “From a first view we think that Growthpoint will potentially be overpaying for these assets. We are not convinced that we have seen the bottom of the UK’s retail fall and are expecting UK growth to slow further.”

He says Capital & Regional’s loan-to-value ratio both pre- and post the proposed transaction is concerning. However, he notes that the transaction will likely be accepted by most Capital & Regional shareholders, considering the attractiveness of Growthpoint’s offer.

“This puts Capital & Regional on the front foot, by reducing leverage and allowing our strong management team to focus its full attention onto executing its strategy and implementing the roll-out of its community centre asset management plan.”