Investors gave a distinctly luke-warm reception to news two of the largest London-focused REITs (real estate investment trusts) were in merger talks.

The boards of Shaftesbury (SHB), a large West End landlord, and rival Capital & Counties Properties (CAPC) revealed they were in ‘advanced discussions’ regarding a potential all-share merger of the two firms.

Shares in Shaftesbury dropped 3% to 560p while Capco shares fell 4% to 158p.

TAKEOVER NOT MERGER

Under the proposed terms of the possible merger, which haven’t been made public, Shaftesbury shareholders would own 53% of the new company and Capco shareholders would own the remaining 47% of the company.

However, the deal is actually structured as a takeover of Shaftesbury by Capco, which already owns a 25.2% stake in its rival, backed by Norges Bank which is a major shareholder in both firms.

Shaftesbury chairman Jonathan Nicholls would continue in the same role at the merged company, but Ian Hawksworth of Capco would take over as chief executive.

The highly experienced Shaftesbury team of chief executive Brian Bickell, who has been at the firm for 36 years, and directors Simon Quayle and Tom Welton, who have both been at the firm for more than 30 years, are all expected to leave the business.

Capco finance director Situl Jobanputra would take over the same role at the new company, with Shaftesbury FD Chris Ward taking on the role of chief operating officer.

WESTENDERS

The merged company would create a REIT with a portfolio of almost three million square feet of lettable space in central and west London in areas such as Covent Garden, Chinatown and Soho.

The split of businesses would be roughly 60% retail and hospitality, with 40% office and residential accommodation.

An executive committee containing equal representation from the existing Shaftesbury and Capco leadership teams will be responsible for the day-to-day management and operation of the combined company.

Capco's Michelle McGrath will manage the combined Covent Garden portfolio, while Shaftesbury's Andrew Price will be responsible for the Carnaby, Chinatown and Soho portfolio and Samantha Bain-Mollison will be in charge of group leasing.

While a merger – or takeover – clearly makes sense from an operational point of view, we get the sense investors in both firms feel they could have got something more out of the deal.

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Issue Date: 09 May 2022