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Shaftesbury shareholders raise concerns about Capco merger

Shaftesbury and Capco have agreed on a deal, but they still have some convincing to do
June 17, 2022
  • RLAM and Investec voice worries
  • Shaftesbury Capital would own nearly 3mn sq ft of real estate

Two leading Shaftesbury (SHB) investors have raised concerns about its planned merger with Capital & Counties (CAPC) after the boards of both companies waved the deal through.

Shares in Shaftesbury closed 8 per cent lower on Thursday, the day on which the respective boards approved the deal, while shares in Capco were down 2 per cent. The merger, which still requires the approval of shareholders and regulators, would create a £3bn company called Shaftesbury Capital – similar to Derwent London (DLN) in size – which would own almost 3mn square feet of West End real estate.

Yesterday, Royal London Asset Management (RLAM), which owns 3 per cent of Shaftesbury, released a statement criticising the deal. “The terms announced today are unattractive and fail to reflect the inherent value of the Shaftesbury estate. It is unclear why it is in the interests of Shaftesbury shareholders to accept them,” it said.

The statement from RLAM comes after Investec, which owns 1.65 per cent of Shaftesbury, told the Sunday Times last month it was worried that Shaftesbury had not explained to shareholders how they would benefit from merging with a company that at the time was trading at a 24 per cent discount to its net asset value (NAV), when Shaftesbury was trading at only an 8.8 per cent discount to NAV. Chris Hill, Investec’s chief investment counsel, told the paper that Capco’s discount suggests its portfolio value would not increase as much as Shaftesbury’s. “If Shaftesbury are going to recommend the deal, they will have to tell us why that perception might be wrong,” he said.

Shaftesbury shareholders will also need to stomach a lot more management changes following the merger than Capco. Although Shaftesbury Capital would be led by a mixture of Shaftesbury and Capco executives, Shaftesbury chief executive Brian Bickell is set to retire on completion of the deal while executive directors Simon Quayle and Tom Welton, who have also been with Shaftesbury for over 30 years, would also leave the business. “If you’re a Shaftesbury shareholder who likes the very specific way that business has been managed for 30 years, you might not be keen on a change of direction,” Stifel analyst John Cahill told Investors’ Chronicle last month.

Responding to the concerns, Ian Hawksworth, the man who will be the chief executive of Shaftesbury Capital if the deal goes ahead, told Investors’ Chronicle that the deal aims to create a company that will be stronger in the long term. “What we will be focused on is generating value from the real estate and running the business in a cost efficient manner to ensure we are growing dividends and that that is reflected in the share price,” he said.