A consortium comprising the Public Investment Corporation (PIC) and founder investors of JSE-listed Balwin Properties, has made a firm offer to acquire all shares in the specialist large-scale residential property developer at R4.35 a share, valuing Balwin at about R2.26-billion. If the transaction is concluded, Balwin's shares will be delisted from the JSE and A2X.

Balwin states that the offer gives eligible shareholders the opportunity to realise cash value at a premium to recent trading levels, with the offer price representing a 41% premium to Balwin's volume-weighted average price (VWAP) over the 180 trading days prior to the announcement. The premium on the 90-day VWAP is 35%.

The property developer adds that the transaction also addresses a practical liquidity issue. "Balwin’s shares have traded in modest volumes for an extended period, making it difficult for larger shareholders to exit meaningful positions through the market without execution risk. The offer provides immediate cash settlement and certainty of value, while allowing the business to continue investing for long-term growth under private ownership," it says.

Further, Balwin says the consortium, which includes entities related to Balwin founder investors CEO Steve Brookes and MD Rodney Gray, as well as GRE Africa, believes a listing on the JSE and A2X is no longer as compelling as when the company first listed on the JSE in 2015, given the limited liquidity in Balwin shares, the discount to underlying net asset value at which the shares have traded and the costs associated with maintaining a listed-company structure.

It notes that the business is long dated, capital intensive and sensitive to the interest rate cycle, which affects affordability, mortgage appetite, buyer conversion and the pace at which sales translate into cash.

The company's residential development model involves long cash-conversion cycles, multi-year inventory build-up, ongoing working-capital requirements, municipal dependencies, infrastructure constraints and input-cost volatility. "These factors can introduce timing and margin variability and are not always well matched to public-market valuation cycles," it points out.

In addition, the consortium believes private ownership, supported by long-term institutional capital from the PIC, continued founder-management reinvestment and the participation of other significant existing shareholders, will provide a more appropriate ownership structure for Balwin’s next phase.

The consortium intends to leverage its capital resources, strategic networks and developmental focus to support Balwin’s growth objectives, while realising cost savings attributable to the delisting, Balwin states.

“This transaction brings together long-term domestic institutional capital from the PIC, acting on behalf of the Government Employees Pension Fund, with the continued commitment of Balwin’s founder-management and other significant existing shareholders. Importantly, management and the reinvesting shareholders are not taking cash out of the transaction. They are remaining invested alongside the PIC because they believe in Balwin’s platform, its development pipeline and its long-term prospects" says Balwin founder and CEO Steve Brookes.

He adds that private ownership will better align Balwin’s funding base with the long-term nature of the company's development pipeline.

"With the support of the PIC, founder-management and our reinvesting shareholders, we believe Balwin will have the capital stability and strategic support required to strengthen its market position and continue delivering high-quality, environmentally efficient residential developments.”

The proposed transaction remains subject shareholder approval, relevant third-party consents, competition authority approval, other regulatory approvals and the issue of a compliance certificate by the Takeover Regulation Panel.

The Balwin investors participating in the consortium will not be allowed to vote on the proposed transaction, but the property developer notes that minority shareholders representing about 63.5% of the eligible vote have expressed their support for the transaction.

Based on the about 519-million shares in issue and the about 261-million shares excluded from voting, about 258-million shares are to be acquired, implying a cash consideration of about R1.12-billion payable to eligible shareholders.

Balwin’s independent board has appointed Valeo Capital as independent expert to review the terms of the scheme. In a preliminary draft report, Valeo has indicated that the terms of the scheme, including the scheme consideration, are fair and reasonable to Balwin shareholders. The independent expert report and the opinion of the Balwin independent board will be included in the scheme circular that will be distributed to shareholders.