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A Shaftesbury PLC shareholders on Thursday hit out at the rationale and finances of the decision to merge with Capital & Counties Properties PLC.
JOHCM UK Dynamic Fund also questioned the ‘cultural fit’ between the two firms. The shares owned and advised by the fund account for 1.2% of Shaftesbury shares.
Shaftesbury and Capco sealed a merger deal on Thursday.
Shaftesbury shareholders will receive 3.356 new Capco shares for each Shaftesbury share held, giving Shaftesbury shareholders a 53% stake in the combined company and Capco shareholders 47%.
The pair had first confirmed they were in merger talks back in May, and those percentages haven't changed. Capco itself already holds a 25% stake in Shaftesbury.
Alex Savvides, a senior fund manager at JOHCM UK Dynamic, said any synergies between the duo are ‘low and expensive to achieve’.
‘What is more, the costs of the proposed transaction and the debt dis-synergies are likely to materially further erode any proposed cost synergies,’ Savvides added.
‘One might also question the cultural fit between the two wider companies.’
Shaftesbury has a greater mix in tenant types, evenly spread in retail, leisure, offices and the residential sector, Savvides explained. Shaftesbury's balance sheet is also ‘more secure’.
‘These characteristics are diluted and made worse through the proposed combination,’ Savvides explained.
The fund manager added: ‘The recovery in trading, occupier demand, vacancy and NAV at Shaftesbury post pandemic, although delayed through successive lockdowns, has now developed faster than expected, leaving the standalone shares trading [Wednesday] at a 14% discount to book value which we believe to be extremely low compared to its history. It is also worth noting that this is a discount post the impact of Covid-19 on property valuations. That discount has now widened further given the considerable dilution and uncertainty created by [Thursday's] proposed merger.’
The Shaftesbury estate is more valuable as a standalone entity that as part of a larger group, Savvides believes. Any suitor that wants access to it should be paying premium, rather than securing the ‘assets at a discount’, Savvides added.
The combined company will be called Shaftesbury Capital PLC and will own property in the West End of London, including in Covent Garden, Carnaby Street and Chinatown. This is ‘close to its major cultural and entertainment attractions, employment locations and transport hubs,’ the companies said.
Shaftesbury shares were 2.1% higher at 546.00 pence each in London on Friday morning, though the stock closed down 8.1% on Thursday. Capco was up 1.5% at 150.20p in London. The stock was down 0.1% at R 29.45 in Johannesburg.
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