Capco acquired the shares in two tranches totalling £436mln, at a price of 540p per Shaftesbury share, representing a discount of 14% to the closing Shaftesbury share price last Friday and a 45% discount to the September 2019 net asset value.
A £348mln cash payment for 20.9% of Shaftesbury's shares is expected to complete this Wednesday, with the second tranche of £88mln requiring Capco shareholders’ approval as part of Financial Conduct Authority rules.
The FTSE 250 company, which owns swathes of property in London’s Covent Garden, said it believes the investment is at an attractive valuation made and more appealing by the adjacency of Shaftesbury’s Carnaby Street and Chinatown property portfolio.
Capco said it still maintains a strong balance sheet with the investment being funded fully through a £705mln revolving credit facility, of which £255mln remains available, plus cash in the bank of roughly £250mln.
The Shaftesbury investment had an implied price of about £1,200 per square foot and a yield of 3.3% based on Shaftesbury's dividend from last year.
“Whilst we can expect continued market uncertainty in the near term, we are confident about the long-term fundamentals and prospects for the West End and prime central London,” said Capco chief executive Ian Hawksworth.
Shaftesbury responded to the announcement by noting that it “looks forward to engaging with Capco as it would with any other shareholder in the company”.
Analysts at Peel Hunt said last week that the only reason for Capco to buy a stake in Shaftesbury would be a precursor to a merger between the two businesses.
On Monday they said it was a significant deal for Capco as its share of Shaftesbury’s property is over £1bn, compared to its own £2.8bn portfolio, calculating the 540p per share price represented a 37% discount to the spot NAV forecast, slightly tighter than the 40% discount that Capco’s own shares trades on.
“The investment within Shaftesbury looks likely to be a precursor to an attempted merger. However, with Shaftesbury trading around 20% more expensive than Capco, pricing a deal to appease both sets of shareholders (particularly the minority holders within Shaftesbury) may prove anything but straightforward.”
Shares in Capco were up 2% to 166.8p on Monday morning, while Shaftesbury's were down 1% to 620p.
--Adds shares and broker comment--