Shaftesbury And CapCo Tie Up Would Create A West End Giant

Many investors have tried to buy or influence West End REIT Shaftesbury through taking a stake in the company. None has so far succeeded. Another contender is now stepping up.

In 2008, Paul Kemsley, an entrepreneur who went on to own the New York Cosmos football team and feature in a U.S. reality TV show, bought a 12% stake in the company in tandem with HBOS, the now defunct bank, and made noises about taking the company private. That came to nothing and he sold the shares to activist investor Laxey Partners, which tried to influence management to drive up the share price, but ultimately sold out at a loss in 2009. 

A few years later, around 2015, Sammy Tak Lee, a Hong Kong property billionaire, began building up a 26% stake in the company and criticising the Shaftesbury management’s investment strategy, saying it had paid too much for assets and frozen out small shareholders with a 2017 rights issue. 

Shaftesbury owns a £4B slug of the West End in China Town, Soho and Carnaby Street, and Lee’s Langham Estate has 1.3M SF of nearby holdings, and a marriage of the two would have been highly profitable for the Hong Kong investor.

But the Shaftesbury board, led by chief executive Brian Bickell, were unmoved by calls to explore any tie up, and so earlier this year Lee appointed Citigroup to sell his 26% stake in the company.

At the weekend, REIT Capital & Counties confirmed the news first revealed by React News that it was paying around £435M for the stake.

CapCo, which owns the retail in and around Covent Garden, a swathe of the West End valued at £2.8B, said it bought the stake as a strategic investment in a portfolio that complements its own holdings. An opportunity to own a quarter of such a portfolio doesn’t come up very often, it said. 

But a merger between the two companies, whose portfolios are highly similar and only a few hundred meters apart, has long been mooted. 

Any combination would create a behemoth with a portfolio valued at almost £7B, the equivalent of British Land’s London portfolio, but with all of it located in the high-value, secure West End market. 

Shaftesbury has a higher stock market valuation, with a £1.8B market capitalisation compared to CapCo’s £1.34B. It would be hard for CapCo to raise equity to buy Shaftesbury, with its shares trading at a 47% discount to the company’s net asset value. That means any tie up would likely need to see both boards agree an all-share merger. 

Norway’s sovereign wealth fund could play kingmaker in any potential tie up, React pointed out: It owns a 25% stake in Shaftesbury and a 13% stake in CapCo. 

Shaftesbury’s acknowledgement of CapCo’s purchase was deadpan to say the least.

“The board looks forward to engaging with CapCo as it would with any other shareholder in the company,” it said in a statement.

The market will watch with interest to see if CapCo is another name to try and swing a deal with the Shaftesbury board, only to find rocky ground.