Market speculation is building that a merger of Emira Property Fund and Freestone Property Holdings may soon take place.

Listed property unit trust Emira and listed property loan stock Freestone issued cautionary notices last week and market analysts say these probably relate to the two merging.

Freestone executive director Michael Aitken and Emira CEO James Templeton said last week they could not comment because Freestone and Emira were trading under cautionary notices.

Evan Robins, head of fixed income at Boe Private Clients, said in a research note the cautionary notices "issued simultaneously" last week by Freestone and Emira were "likely to relate to a merger of the two funds, with Freestone unitholders expected to benefit the most from the possible transaction".

Robins said the market expected the transaction, given that Rand Merchant Bank (RMB) and associated funds owned more than 40% of both Emira and Freestone.

"Increased size would be of mutual benefit to unitholders in both entities. If a merger is being proposed, without any additional information we would think that it is likely to be a friendly merger led by RMB to provide them and unitholders with a more coherent, sizeable and liquid property flagship."

But RMB would have to entice more parties within Freestone than Emira to accept the merger. Robins said he expected the deal "not to be completed at an obvious premium" but at terms more beneficial to Freestone unitholders as RMB would need the support of Corovest and Coronation.

Coronation has an 18% interest in Freestone and Freestone's management company is a joint venture between Corovest and RMB. RMB owns the Emira management company.

Angelique de Rauville, MD of Investec Listed Property Investments, said she believed the two property funds' property portfolios were compatible "from a merger point of view".

"It is also an opportunity to streamline the businesses regarding costs, which will ultimately benefit unitholders of both Emira and Freestone. They are duplicating a lot of costs, for example listing fees, annual reports and circulars to unitholders." A merger would also deal with potential conflicts of interest resulting from the same company managing both portfolios.

Business Day
Publisher: I-Net Bridge
Source: I-Net Bridge