Norges Bank Investment Management has been edging up its stake in Shaftesbury, with the central London REIT fast become a corporate battleground.
The Norwegian sovereign wealth fund now holds a stake of just over 22% in a move that could give it a touch extra firepower in the event of any future takeover tussle.
The move takes its ownership closer to that of London-based Hong Kong billionaire Sammy Tak Lee, the long-term shareholder in the company who has challenged the board over equity issuances and as a result restricted its ability to tap the markets for more capital without consulting existing shareholders.
In February, NBIM bought an 8.2% stake from Invesco for £245m to take it to 20.86% and yesterday made its latest play when it bought a further 1% for around £2.8m.
Lee himself has also increased his holdings, upping his stake from 25.02% to 26.15% last month.
Both of the company’s largest shareholders have been able to take advantage of the recent relative weakness of Shaftesbury’s share price, it having been impacted partly by negative sentiment in the retail and leisure sector. Shaftesbury has been trading at a discount to its net asset value, which is historically rare for the company, of around 6%.
Norges’ holding in Shaftesbury is understood to be proportionally the largest of any listed company it invests in globally, with NBIM typically holding 3-4%.
This illustrates the importance and unique status that Shaftesbury has within Norges. Whether this could extend to Norges making an exception to its more passive ownership style and instigating a move for the company at some point is not clear.
Without doubt, any suitor for Shaftesbury would need the support of both Norges and Lee, as with more than 20% stakes they can block any deal. If one were to strike a deal to buy out the other, with a combined 48% share in the company the buyer would be legally obliged to make an offer for the whole company, having gone above the 30% threshold.
Accumulating support from there could be seen as a relatively straightforward proposition considering that 78% of the company is owned by the top 15 shareholders, with Blackrock at 5% the next largest.
Shaftesbury’s largest shareholders |
|
| Owner | Stake |
| Sammy Tak Lee | 26% |
| Norges | 22% |
| Blackrock | 5% |
| Fidelity | 3% |
| Vanguard | 3% |
| Royal London Mutual | 3% |
| Standard Life Aberdeen | 3% |
The Capco connection
The increase in buying activity by Norges and Lee coincides with corporate activity at Capco, which owns the Covent Garden estate that neighbours Shaftesbury’s West End holdings, as well as its Earls Court regeneration project.
Capco is in the midst of a prospective demerging of its two arms, with CK Asset Holdings in talks to buy into Earls Court, which may help accelerate the process. If the demerger were to complete, Covent Garden would stand alone and a potential merger with Shaftesbury, long contemplated and speculated over by industry analysts, could become a more straightforward prospect.
See also: What could a Capco demerger mean?
A merger between the two companies could also potentially attract more, fresh capital to buy into the company, given its increased magnitude, and with it a prospective buyout of Lee’s stake at a premium that he is long thought to have desired.
In February, Jefferies analyst Mike Prew suggested that Lee voting against resolutions at Shaftesbury’s annual general meeting that allow it to issue equity freely was a way of engineering a position whereby the management would offer to swap his stake in the company for its China Town estate to get him off the register. Lee is the owner of the Langham Estate, much of which neighbours China Town.
Capco’s Covent Garden, which is valued at a yield as low as 2.5%, is broadly considered to be of a higher quality than Shaftesbury’s estate, although some investors and analysts also see greater potential upside in Shaftesbury’s portfolio. This is due in part to the potential for conversion above the shops Shaftesbury owns and for the potential to drive rents and improve the tenant mix in China Town. However, the two companies are certainly not so different that putting them together would be incoherent.
Norges and Lee appear at present to be playing out a Cold War over Shaftesbury. If either breaks out into attack mode the ramifications could be dramatic.
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