SOUTH AFRICA – Safari Investments has unveiled that it will make an offer to buy out Fairvest Property Holdings via a share-swap deal, after the two property companies announced their plans for a merger.

Safari and Fairvest, which both focus on lower-income retail properties, said that the deal would “unlock enhanced efficiencies in the management of both companies’ property portfolios”.

The combined entity would be managed by Darren Wilder as chief executive officer, Dirk Engelbrecht as Chief operating officer, and Jacques Kriel as Chief finance officer, reports Business Day

“We are ironing out a few details but it looks like we should be able to complete the merger in about four months,” Wilder said.

“It makes sense for both parties. I think a merger would lead to a well-deserved re-rating for Fairvest.

We operate in the same markets and can create a more liquid fund with a market capitalisation close to R4 billion (US$283.82 million) following some share price growth and assets of about R6 billion (US$425.73 million).” 

Wilder said the merger would be accretive for both parties, and the combined entity would deliver market-beating dividend growth. 

At the time of announcing the share swap deal, Fairvest’s market capitalisation on stood at US$141.91million (R2bn) while that of Safari was US$92.24 million (R1.3bn).

The scheme, if approved, will involve Fairvest investors exchanging their Fairvest shares for a stake in Safari, using a swap ratio of 0.45 Safari shares for each Fairvest share.

“Implementation of the proposed transaction is expected to allow for some immediate cost savings and the realisation, over time, of improved funding costs and other efficiencies as a result of greater critical mass,” the companies said in a joint statement.

Fund managers have said a merger between the two would be positive, given that they invest in similar assets and have scope to enhance each other’s operations.

Fairvest is Cape Town-based and invests throughout South Africa while Safari is situated in Pretoria and invests largely in Tshwane and in Namibia.

Keillen Ndlovu, head of listed property funds at Stanlib said there is room for consolidation among the smaller funds with similar portfolios and strategies. “They could benefit from scale and improved liquidity,” he said 

Fairvest has been one of the best performing property stocks but it has been hesitant to buy or merge with other companies.

The company has delivered inflation-beating dividend growth every interim period for more than six years, growing its dividend 8.3% in the six months to December.