Public Storage risks investor backlash by overbidding for Abacus Storage King

Abacus Storage King is in play, with its major shareholder bidding to buy the business with industry heavyweight Public Storage.

The future share price movements of Public Storage and Abacus Storage King are critical to whether the pair get a deal done, say market sources.

In what was a surprise to some in the market at the weekend, Public Storage and the business interests of Nathan Kirsh, Ki Group, lifted their buyout offer for Abacus Storage King.

The company, advised by Macquarie Capital, told the market on Monday the pair had increased their bid to $1.65 per share from $1.47, which represents an improvement of about 15 per cent.

The target’s board is yet to recommend a deal, despite granting Ki Group and Public Storage access to six weeks of due diligence.

DataRoom understands that investors in the New York-listed Public Storage would be unhappy about the company buying a business at a price that would represent a less favourable rate of return, or rate, compared to where its own stock is trading at.

Public Storage was currently trading at an implied cap rate of 5.8 per cent, which was about the same implied cap rate as Abacus Storage King.

Should Abacus Storage King’s share price rally further, and Public Storage’s share price fall, the deal will not look so favourable at the current level for Public Storage investors.

Analysts take it as a signal that if the share price levels are maintained, Public Storage is unlikely to lift its offer further.

Meanwhile, National Storage is considered the kingmaker, regardless of the direction of the Abacus Storage King board, because with its recently increased 9.51 per cent holding, it could block a vote that needs 75 per cent shareholder approval.

Mr Kirsh would be unable to vote his 40 per cent stake he holds in the business.

Some think that National Storage chief executive Andrew Catsoulis could negotiate some sort of deal, such as Public Storage selling his business a portfolio of assets in return for agreeing to the buyout.

Abacus Storage King, which has about 150 storage assets on its balance sheet, and National Storage largely operate in different geographic locations.

National Storage bought its 125m shares at less than $1.50 each, which sees the group make a $25m pre-tax gain, assuming it was selling at a 20c per share premium.

Advising Ki Group and Public Storage is Goldman Sachs.

Mr Kirsh’s Ki Group owns 49.99 per cent of Abacus Group, which manages Abacus Storage King, as well as 40 per cent of Abacus Storage King directly.

Abacus Group owns almost 20 per cent of Abacus Storage King.

Abacus Storage King rejected Public Storage and Mr Kirsh’s $1.93bn or $1.47 per share offer earlier in the year, saying it undervalued the company, as minority shareholders also took exception to the offer.

Abacus Storage had also announced a pro forma net tangible asset figure of $1.73 per share, so the latest offer means it will be selling the business at a discount to its own valuation.

Abacus Storage King was the result of a demerger out of Abacus Group in 2023, but the Kirsh Group said in a letter on the ASX when it made its play with Public Storage that since the de-stapling, it had “significantly underperformed its peers”.

Public Storage tried to buy National Storage REIT at the onset of the Covid-19 pandemic in 2020.

Shares in Abacus Storage King closed up 5.76 per cent on Monday at $1.56.

JPMorgan analysts said in a research note that it had a $1.70 per share price target on the stock, which assumed a 6 per cent increase in the value of the storage assets to December.

“We think it is likely that the revised takeover bid price will be accepted, given it represents a large premium to the historical price to NTA discount that Abacus Storage King has been trading on since listing (about 22 per cent) and a material 41 per cent premium to the three-month undisturbed volume weighted average price of $1.17 up until April 4.”