Abacus Storage shareholders riled by takeover bid

An Abacus Storage King asset in Robina.

A push by South African billionaire Nathan Kirsh and US giant Public Storage to take over the Abacus Storage Property Trust is raising the hackles of minority shareholders.

While the move values the somewhat unloved storage spin-out at about $1.93bn, it is the discount at which their bid is being made that has upset the unaffiliated shareholders.

They are not keen to be mopped up for a lowball price which analysts have pegged at an 8 per cent discount to the storage fund’s underlying assets. This is being deemed unacceptable by shareholders who are worried their interests could be swept aside if the Macquarie-advised target board capitulates.

Kirsh’s Ki Group already holds an existing direct and indirect interest in the trust of about 59.47 per cent but is considered unlikely to be in a position to vote on its own proposal.

Share market players are now turning their attention to whether they can vote on a competing proposal, given they also essentially control the manager, Abacus.

Investors are betting that if Kirsh sticks to his current lowball bid, then it will probably be voted down.

While the normal way of avoiding this is to offer a near traditional price bump, there is also the possibility of a rival coming over the top with a competing proposal if the trust is in the hands of the minorities.

Kirsh explored plenty of US partners before landing on Public Storage, and that company’s US rivals are closely watching the progress of the discounted bid.

Despite the volatility that has knocked markets around, institutions remain reluctant to accept discounted bids.

The situation also differs from Charter Hall’s move on Hotel Property Investments where it did not require the board recommendation that the Goldman Sachs-advised Kirsh is chasing.

With more to play out, eyes are on industry players ranging from US-based Extra Space Storage, the expansionary Warburg Pincus, which owns Asia-based StorHub, and another US giant BlackRock, which is buying the $400m StoreLocal operation.

Kirsh will be betting that shareholders crumble in the face of market volatility.

The offer price is well ahead of recent trading and was at a 26.7 per cent premium to the target’s closing price of $1.16 per security ahead of the bid emerging on April 4.

The Kirsh camp is pushing the case that it is offering a path to genuine value creation and a solution for shareholders that is fully financed at a time of volatility in debt markets.

There is some reciprocal unhappiness that it has yet to win over the board to gain due diligence on the target trust.

From the Kirsh point of view, the offer reflects full and fair value for a trust which detractors see as too small, with its funding constrained, and a limited free float all but cutting off access to capital and in a sector that demands equity for growth.

Many of these criticisms could apply to the storage fund’s manager Abacus Group itself.

It had been casting about for capital partners to back its office and retail portfolio before the offer lobbed.

An end game is yet to emerge but Abacus could be next on the takeover block as investors are yet to be convinced about how the owner of small-scale office portfolio will compete against its larger rivals in a tough capital market environment.