Kirsh, Public Storage pull $2.2b takeover bid for Abacus Storage King
South African billionaire Nathan Kirsh and New York-listed Public Storage have pulled their joint $2.17 billion bid for Abacus Storage King – a move that already faced an effective block from a rival shareholder – saying they could not agree with directors of the target company on its value.
Ki Corporation, the entity of Nathan Kirsh, and Public Storage said on Tuesday they were withdrawing the all-cash $1.65-per-security offer – raised in July from their initial $1.47 offer – that had given them access to Abacus Storage King’s confidential due diligence materials.
“We appreciate Abacus Storage King’s partnership through the due diligence process, which validated the strength of the company and property portfolio,” Public Storage chief executive Joe Russell said.
“However, following comprehensive diligence, we are unable to match their independent board committee’s value assessment.”
Shares in Abacus Storage King – which reported a net tangible asset value (NTA) of $1.74 per share earlier this month – sank 15¢, or 9.4 per cent, to $1.40, cutting their one-year gain to 12.6 per cent, compared with the S&P ASX 200 gain of 10.6 per cent.
Citi equity analysts cut their rating on the stock from “buy” to “neutral” after the announcement.
“Self-storage in Australia remains an attractive sub-sector attracting large global capital providers with longer-term growth,” Howard Penny, Suraj Nebhani and Akshit Batra said in a note to clients after the announcement.
“In our view, a key requirement of the deal was a further upgrade of the offer price to above NTA in order to be acceptable to minority shareholders. We downgrade to neutral with a lower target price of $1.50.”
Not going away
Ki Corporation said it would remain a committed long-term investor in the business spun out of parent Abacus Property Group in 2023. A spokesperson for the consortium referred to Ki’s statement in April that it did not intend to sell down its stake if the bid was unsuccessful.
“We continue to see opportunity and value in ASK’s business and are appreciative of Public Storage’s partnership,” Ki Corporation chief executive Bradley Fried said. “As a major shareholder, Ki Corporation looks forward to working with the board to create value for all shareholders.”
At the time of the bid, Ki also said it would not put any extra capital into Abacus Storage King in its current form, and that it would not support an increase in gearing or the sale of any material operating assets in the company directly or indirectly through a joint venture or managed fund.
The withdrawal does raise a question of what would be the next step for Abacus Storage King, which now has two rival parties with large stakes on its share register. Managing director Steven Sewell declined to comment on Tuesday.
Strategic stake
ASX-listed National Storage REIT (NSR), which had the most to lose from a rival backed up by capital-injecting offshore shareholders, took a stake in Abacus Storage King in the June quarter that it said last week had risen to 10.35 per cent.
The takeover offer structured as a scheme of arrangement needed a 75 per cent vote of shareholders to pass. But the consortium owned 60 per cent of the company – a direct 40 per cent stake and nearly 20 per cent indirect stake through Abacus Property – and it would not be able to vote on its own proposal, leaving the decision in the hands of the remaining shareholders.
With ownership of 10.35 per cent (up from 7.8 per cent at end-June) of the 40 per cent of Abacus shares in free float, NSR was able to block any vote on the deal.
NSR managing director Andrew Catsoulis last week said his company had no intention of giving up its “very strategic” stake, after an analyst said the cost of the holding was adding 150 basis points to NSR’s own gearing level.
NSR had acquired its holding in Abacus Storage King’s high-quality portfolio at a 20 per cent discount to NTA and would be unlikely to be able to do so again, Catsoulis told analysts.
“We think it’s great value given the high-quality nature of the assets, and the very strong and well-led management team that’s there,” he said.
”We feel very strongly we’ve got a fiduciary obligation to our own shareholders to make sure that the only other listed portfolio in the market, if it is to be traded, is traded at fair value.”
NSR shares traded down 121¢, or 4.4 per cent, to $2.42 on Tuesday.
The Citi analysts said withdrawal of the bid strengthened NSR’s ability to take a greater local market share in time.
“Longer term, the withdrawal of the PSA and KI Corporation consortium offer removes a key well-capitalised potential competitor to NSR in the Australian self-storage market, allowing for NSR to continue its strong development market share and enabling the roll-out of its significant development pipeline at more than 10 per cent stabilised internal rate of returns,” they said.
