Shaftesbury and Capco negotiating £3.5 billion merger of two of London’s most valuable estates

Published On: May 10, 2022Categories: Latest News2.3 min read

London-listed Shaftesbury and Capco (Capital & Counties) have confirmed they are in talks that look likely to conclude in a £3.5 billion all-share merger that will combine two of London’s most valuable estates. The move has been on the cards since Capco bought up a 25% stake in the larger Shaftsebury two years ago.

Plunging commercial property valuations over the pandemic have meant companies in the sector have been largely in survival mode for the past two years. They are now, however, recovering as office workers and shoppers return to city centres, especially London. The upturn in valuations is likely to have prompted the boards of the two companies into action now.

Both REITs still trade at a discount compared to their own valuation of assets. Capco, which owns a large portfolio of properties around Covent Garden, closed last week at a 27% discount to the paper value of its portfolio. Shaftsebury, whose central London estate encompasses property in Carnaby Street, Soho and Chinatown, trades at a 7% discount.

When Capco, with a market capitalisation of £1.4 billion, bought 25% of Shaftsebury, valued at £2.2 billion, in 2020 it gave it the de facto power to block any other potential buyer from making a move. It also bought out the latter’s shareholder Samuel Tak Lee, a Hong Kong property mogul who was proving problematic and suing the company over how it handled a 2017 fundraising.

The biggest shareholder in both Capco (15%) and Shaftesbury (26%)is the Norwegian sovereign wealth fund Norges, which is backing the merger that would create one of London’s biggest listed property funds. The deal is being structured as Capco acquiring the larger Shaftsebury. Shaftesbury shareholders will own 53% of the combined company minus the 25% in the former already owned by the latter.

The merged entity will reportedly be led by current Shaftesbury chairman Jonathan Nicholls and Capco chief executive Ian Hawksworth. The current chief executive of Shaftesbury Brian Bickell plans to retire once the proposed deal has been completed. Capco chairman Henry Staunton, who is 73, will step down from the board.

Shaftesbury’s history dates back to 1986 when it was established by the Levy family as home to £10 million of West End properties it acquired after selling its property development business to P&O. It listed on the London Stock Exchange a year later and has since built up a portfolio of properties including shops, cafes and apartments in London’s West End across Carnaby Street, Chinatown and Soho. The portfolio is estimated to be worth around £3.3 billion.

Capco is only 12 years old and was formed in 2010 by Liberty International, a South African property group listed in London, spinning out its portfolio into two separate companies. Capco was created to hold the central London properties and Capital Shopping Centre, which became Intu Properties, took over the ownership and management of Liberty’s shopping centres. Intu fell into administration in 2020 when it struggled to gather rent from tenants over the early stages of the pandemic, having taken on more debt than it could handle through that cashflow crunch.

About the Author: Jonathan Adams

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