West End: Shaftesbury investor raises concern with £3.5bn merger with rival Capco
Concerns have been raised over West End landlord Shaftesbury’s planned £3.5bn merger with rival Capital & Counties Properties (Capco), by a key investor.
Shareholders could be left worse for wear, Chris Hills, chief investment consultant at Investec, which has a 1.65 per cent stake in Shaftesbury, told The Times.
As Shaftesbury trades at just an 8.8 per cent discount to its net asset value, the property titan’s shareholders would be justified in jitters over a merger with Capco, which trades at a 24 per cent discount.
The discount implied Capco’s portfolio value would not improve to the same extent as Shaftesbury.
“If Shaftesbury are going to recommend the deal, they will have to tell us why that perception might be wrong,” Hills said.
A source close to Capco told the newspaper that a merger would benefit Shaftesbury investors by removing a blocking stake and enhancing its net asset value.
Capco runs the Covent Garden estate while Shaftesbury owns Soho landmarks including Carnaby Street.
The firms have said they are in “advanced discussions” over an all-share merger.
Under proposals, Shaftesbury shareholders would own 53 per cent of the combined real estate investment trust (REIT), and Capco’s would own a remaining 47 per cent.
After the companies publicly pledged their interest in a merger, Stifel analyst, John Cahill, said: “A merger of the two companies would result in a combined West End portfolio totalling c2.9m sq ft, and a company with a market capitalisation of around £3bn, making it of similar scale to Derwent London.
“Assuming no material change in shareholders over the coming weeks, aside from Norges c.20 per cent stake in the combined company, the register would be much more balanced than either company has had for some years and should benefit from greater liquidity in the shares.
“We do not forsee any dramatic reduction in the cost base other than synergies resulting from a single Board, but in a real estate equity market characterised by take-private deals from sector-agnostic private equity, the increase in scale could bring an increased level of protection from takeover.”