Real Estate

Shaftesbury/Capco: West End landlords to combine in all-share deal


So much for location, location, location. Plans to combine prime London landlords Shaftesbury and Capital & Counties got poor feedback on first viewing on Monday. After proposals leaked at the weekend, the companies confirmed they planned to go ahead with an all-share combination. Declines in both companies’ shares wiped out more than £100mn of market value on the day, leaving the deal valued at £3.5bn.

Although Shaftesbury shareholders will receive 53 per cent of the new company, Capco chief executive Ian Hawksworth will continue to be in charge. All but one of Shaftesbury’s team plan to leave including chief Brian Bickell who will retire. What is effectively a nil-premium takeover by Capco would be unlikely to proceed without the backing of a large shareholder and a cross-shareholding.

Chart of portfolio breakdown for Capital and Counties and Shaftesbury, showing value (£mn) for retail, food & beverage, office and residential.

One reason for the lack of premium is Capco’s previous history with Shaftesbury. It owns a quarter of the property group, effectively blocking approaches from other interested parties. Also, Norway’s sovereign wealth fund Norges Bank holds large stakes in each. It has 15 per cent of Capco and more than 25 per cent of Shaftesbury, and backs a deal.

Both landlords own some of London’s most esteemed shopping destinations: Shaftesbury’s Carnaby Street and Capco’s Covent Garden. A combination makes some sense.

Even so, Capco shares have traded at a steeper discount to net asset value over time: about 20 per cent compared with 8 per cent at Shaftesbury on average over the past five years. That is justified given Shaftesbury’s better record of growing its net asset value over the past decade, thinks Miranda Cockburn at Panmure Gordon.

Two charts. First shows West End landlords, share price premium/discount to net asset value for Shaftesbury and Capital and Counties, 2018 to 2022. Second chart shows long-term returns for Shaftesbury and Capital and Counties, 2010 to 2021

Given that most of the top team Shaftesbury’s will go, minority shareholders will need to examine whether the new team can add value. Norges Bank thinks so. But a 17 per cent discount to net asset value for the combined companies on the day suggests the market has its doubts.



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