Billionaire Nathan Kirsh, Public Storage sweeten bid for Abacus Storage to $2.2bn

The future of the sprawling storage empire will be decided in a takeover battle.

Storage King in Gregory Hills, Sydney.

The battle for the listed Abacus Storage King is coming to a head, with South African billionaire Nathan Kirsh and US listed group Public Storage sweetening their takeover bid to value the company at $2.2bn.

Mr Kirsh, who has a stake of close to 60 per cent in the trust via his Ki Corporation, and the US giant had teamed up earlier this year to bid for the company. But they had appeared to be thwarted when Abacus Storage King rejected their $1.93bn takeover bid in May, saying it undervalued the company.

The pair have now surprised the market by bumping up their offer, despite local rival National Storage REIT lifting its stake in the target company so it can effectively veto a deal.

The revised bid for Abacus Storage King is at $1.65 per security, a 15 per cent jump on the earlier offer. But it still sits at a 4.6 per cent discount to the storage trust’s asset backing of $1.73 per share.

While the takeover target will now allow due diligence to the persistent suitors, the majority shareholder – Mr Kirsh’s Ki, which holds his 59.47 per cent stake both directly and via his interest in the trust’s manager, Abacus – may face stiff opposition to its bid.

The rival National Storage, run by Andrew Catsoulis, has built a blocking stake of 9.5 per cent in the target, as of last Friday. It boosted its stake by spending more than $67m via multiple on-market transactions since May 30. It first swung into the takeover battle by seizing a 4.78 per cent holding in April, when it considered the consortium’s then $1.47-per-share offer as well below what minority investors considered to be a fair price.

Citi analysts said that although the latest offer was stronger than the previous offer, there remains risk on execution from acceptance of minority shareholders. The analysts said a further bump may be necessary to seal the takeover. “In our view, a further revised offer above NTA per share may be necessary to convince minority shareholders to agree to the deal with anticipated cap rate compression and compelling Australian self-storage fundamentals,” Citi said.

Storage has emerged as a lucrative sector as investors chase alternatives to traditional property, and demand is being driven by forces including the shift to apartment living and even e-commerce as operators use the facilities to distribute products.

The trust’s independent board committee, advised by Macquarie, will grant six weeks of due diligence to the consortium. But the market appears to be cautious about whether it will go ahead, as Abacus Storage King units lifted by 8c to $1.56, below the offer, though some recent takeovers have been struck at discounts.

National Storage must now decide whether to take the higher offer, and bring Public Storage into Australia with the support of Mr Kirsh, or to try to use its stake to block this move. It is an active developer in the area and also has a joint venture with Singapore’s GIC. It has the balance sheet capacity to both fund growth and lift its stake in the Abacus trust.

Losing control of the listed storage trust would also hit the Abacus head stock, which is already under pressure as its majority holder Mr Kirsh has teamed up with the US group to drive his interests in Australia. Abacus shares added 2c to close at $1.16, with the group expected to update the market at its August results.

Abacus Storage King had rejected the consortium’s earlier $1.9bn offer on May 13, saying the offer did not “reflect compelling value” and that certain tax ruling conditions underpinning the bid added a “completion and timing risk”.

The revised offer is also subject to a number of conditions, including the tax rulings by the ATO and also approvals from the Foreign Investment Review Board and the New Zealand Overseas Investment Office.