| Mergers & Acquisitions |    960 VIEWS  |
| Mergers & Acquisitions | |
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Tuesday, August 4, 2020 / 9:14 AM
/ NSE / Header Image Credit: Ecographics
The board of directors of
UAC of Nigeria PLC ("UAC") is pleased to announce that a binding agreement has
been signed with Custodian Investment PLC ("Custodian") for Custodian to
purchase a 51 percent equity interest in UACN Property Development Company PLC
("UPDC") from UAC (the "Transaction").
This agreement marks the
beginning of a partnership between Custodian and UAC that will achieve both
companies' respective objectives in the real estate industry. It also marks a
significant milestone aligned with UAC's strategy to focus on its core
businesses.
Deal
Highlights
Commenting
on the partnership, Wole Oshin, Group Managing Director of Custodian Investment
PLC, said:
"We
at Custodian are excited about the possibilities arising from this partnership
with UAC which provides multiple levers for value creation. The rationale for
the Transaction is that Custodian and UAC share the view that their ambitions
for capturing opportunity in the real estate industry will be better achieved
working in partnership.
UPDC
is one of Nigeria's leading real estate development companies, having completed
several landmark residential and commercial developments over the past twenty
years. This Transaction will provide Custodian with a platform to capture
arising real estate opportunities. It also immediately provides recurring cash
flow visibility and attractive yields as a result of its direct exposure to
Nigeria's leading real estate investment trust ("UPDC REIT") with a track
record of profitability and annual dividend distribution which offers a good
compliment for our product portfolio.
We
are confident that the recent recapitalisation of UPDC, significant reduction
in finance costs, and recently reconstituted leadership have repositioned the
company to operate sustainably and capture growth opportunities aimed at
increasing stakeholder value going forward."
Folasope
Aiyesimoju, Group Managing Director of UAC, said:
"The
Transaction is a significant step in achieving our objectives for UPDC.
In
2018, the Board and management of UAC embarked on a strategic review to
evaluate the performance of the company and its subsidiaries. The objective was
to achieve sustainable positive financial performance from our existing
operations and enable management focus on businesses that align with our
strategy. In reviewing UPDC, the Board weighed the long-term opportunities in
the Nigerian real estate sector against the fundamental differences between the
cash flow profile and capital needs of UPDC and those of the other entities in
UAC's portfolio. Following its review, the Board concluded that it would be in
the best interest of UAC to exit its interest in the real estate sector,
allowing UPDC to operate as a standalone legal entity, free to source
appropriately structured capital and to unlock value for its shareholders.
In
September 2019, the Boards of Directors of UAC and UPDC jointly announced three
significant strategic initiatives aimed at strengthening UPDC and positioning
the company to operate as a standalone entity. This included a rights issue to
recapitalise the business, plans for UAC to transfer UAC's equity interest in
UPDC pro-rata to UAC's shareholders ("UPDC Unbundling"), and plans for UPDC to
unbundle the UPDC REIT to its shareholders ("UPDC REIT Unbundling"). The N16 billion UPDC rights
issue was successfully completed in April 2020, proceeds of which were used to
reduce borrowing costs and significantly improve UPDC's capital position.
In
the process of progressing the unbundling initiatives, UAC received a credible
offer from Custodian. The terms of the offer compelled the Board to re-evaluate
the planned approach to deconsolidate UPDC and influenced the Board's decision
to proceed with the sale of a portion of UAC's interest in UPDC to Custodian,
effectively putting an end to the UPDC Unbundling.
We
are delighted about the positive impact that a strong anchor shareholder like
Custodian will have on UPDC and are focused on ensuring a smooth transition."
Custodian's Expected Benefits
Custodian Investment PLC is a leading investment company providing a wide range of financial products and services through its subsidiaries in Nigeria. The company offers Pension, Life, General Insurance and Trusteeship products across the financial services sector with potential for significant scale. Custodian views the Real Estate sector, in spite of its recent challenges, as complimentary to its product offering. Although UPDC has faced certain challenges in recent times, an investment in the company is expected to provide the following opportunities:
a) Attractive valuations relative to replacement cost and market values: UPDC and UPDC REIT trade at attractive valuations relative to the market values of their underlying assets.
b) Recurring cash flows visibility: The UPDC REIT is highly cash generative with recurring income streams. It has distributed an average of N1.4 billion p.a. over the last five years. Rental income from UPDC REIT is underpinned by leases with first tier tenants. This presents a good match for Custodian's business.
c) UPDC has N10 billion of assets for sale which the management team will focus on realising to provide shareholders with liquidity.
d) Leveraging more than two decades of UPDC's strong track record as a leading developer to drive its core property development business.
e) A
profitable and scalable facilities management business.
1. The recent rights issue to recapitalise the company
has stabilised UPDC thus creating a foundation for growth.
2.
UAC's continued ownership of a minority interest in
UPDC will facilitate a smooth transition.
UAC's Expected Benefits
Deconsolidation of a business (i.e UPDC) that has a different cash flow profile and capital needs from the rest of UAC's portfolio. Upon completion of the sale, UPDC will cease to be a subsidiary of UAC and will operate as a standalone entity, separate from UAC.
1. Increased management focus on businesses in sectors that align with UAC's core strategy.
2.
Having Custodian as a strong anchor shareholder in
UPDC strengthens UPDC strategically.
Shareholders
are advised to exercise caution when dealing in the securities of Custodian,
UAC, and UPDC until requisite approvals are obtained. Further updates will be
communicated accordingly.
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