Hopes of a bid for Capital Shopping Centres Group (CSCG) are fading fast.
The reason is the aggressive press release and letter Simon Property Group fired off to the board of CSCG, the largest retail property owner in the UK, on Tuesday morning.
Here’s a flavour:
Simon remains willing to consider making acquisition proposals that would afford CSC and its shareholders with a superior alternative to the Trafford Centre acquisition and has urged the CSC Board to allow it the opportunity to review very limited and specific due diligence information with respect to CSC which would assist in that regard. If, however, the CSC Board were to state that it will not provide any due diligence materials to Simon, Simon would have no alternative but to terminate its approach: Simon will not waive this requirement.
We previously urged you to allow us the opportunity to review very limited and specific due diligence information with respect to CSC, which would assist us to formulate an acquisition proposal that would afford CSC and its shareholders with a superior alternative to the Trafford Centre acquisition. By declining to provide us with the requested limited due diligence information, you have constrained the exploration of an opportunity to benefit your shareholders.
If the proposed Trafford Centre acquisition is approved, we would need to consider liquidating our position in CSC.
The back story here is that CSCG has made a £1.6bn offer for the Trafford Centre, the 1.5m sq ft shopping centre near Manchester.
The deal will see John Whittaker, the billionaire owner of the mall, overtaking Donald Gordon, the South African entrepreneur who founded Liberty, as the largest investor in CSCG. He will emerge with at least a 19.9 per cent stake.
And that’s what made SPG – a 5.1 per cent shareholder – so angry. From day one, the Trafford Centre transaction has looked like a defensive deal to protect CSCG and its management from a takeover, says Oilvetree Securities.
Given CSCG has always been a potential target for both Westfield and Simon (both are material shareholders), the company has been looking for ways to protect itself since it was demerged from Liberty. This transaction would introduce friendly Peel Holdings onto the register as the largest shareholder by issuing equity in exchange for the Trafford Centre, meaning Simon’s (and Westfield’s) strategic interests going forward are diminished.
It is clear that CSCG management see the Trafford Centre transaction as a preferred route than a potential sale of the company.
The trouble is that apart from writing letters, there’s not much SPG can do about it unless, of course, it makes a hostile knock-out bid (note that shares in CSCG are already trading at a premium to net asset value of 375p).
That’s because there’s is little or no chance of shareholders voting down the Trafford Centre deal, even though it is expensive and allows Whittaker to take control of CSCG without paying a proper premium.
Olivetree reckons the founding Gordon family (15 per cent) and CSCG’s South African investors (over 20 per cent) are perfectly happy owning shares in a London-listed retail property company.
Moreover, Olivetree says they have little appetite to sell out because they would probably have to reinvest any sale proceeds in the South African market due to strict foreign exchange controls.
(It’s also worth noting that CSC management are in South Africa this week explains the merits of the Trafford deal).
So, it looks as if SPG will have to sell its holding in CSGG. And one can probably expect Westfield to do the same in the next couple of months. After all, once the Trafford deal goes through CSCG really will be bid proof
And that means CSCG won’t be trading above its NAV for much longer.
Related links:
Response to Letter from Simon Property Group – RNS
Simon Group rebuffed by CSC - FT