Pressure builds for better offer in battle for Abacus Storage King
A consortium led by South African billionaire Nathan Kirsh may need to increase its $1.9 billion takeover offer for Abacus Storage King after a rival operator bought a small stake in the self-storage player, potentially blocking the proposed buy-out, according to analysts.
The surprise move this week from National Storage REIT – known by its ticker NSR – gives it a beachhead of near 4.8 per cent in the register of its listed rival. But, as analysts were quick to note, a takeover transaction could be blocked with a stake of just 10 per cent, or even less.
Corporate rules prevent the near-60 per cent stake held by Kirsh’s family office Ki Corporation and his consortium partner, New York-listed giant Public Storage, from being voted in any shareholder vote on a scheme of arrangement. That effectively gives NSR more leverage in the remaining vote to block a takeover.
Its intervention has dramatically changed the way the takeover process could now play out, with analysts canvassing the prospect of the consortium having to improve its offer, which is currently around 8 per cent below the net tangible asset value of Abacus Storage.
In light of that, Barrenjoey analyst Ben Brayshaw has raised the target price for Abacus Storage, known by its ticker as ASK, to $1.52 from $1.49.
“This assumes a higher probability that Ki Corp and PSA pay NTA of $1.60 for ASK – an 8.8 per cent increase on the non-binding offer of $1.47 and a 37.9 per cent increase on the undisturbed price,” Brayshaw wrote in a client note.
NSR has said it doesn’t at this point intend to make a competing proposal for ASK, but said its rival was a “compelling investment” at the current price while noting the Kirsh-led consortium’s offer was well below Abacus Storage’s net tangible asset value.
The expansion of the US player Public Storage in Australia could be a negative for NSR, according to Barrenjoey’s Brayshaw.
“PSA is the largest owner, operator and developer of self-storage assets in the world. Its size, low cost of capital and access to funds could present some degree of risk to NSR’s market share,” he wrote.
NSR could increase its stake to 10 per cent and thereby increase its effective voting rights to around 25 per cent, assuming that Kirsh’s Ki Corporation was ineligible to vote its stake.
“This is not unrealistic as NSR could arguably be incentivised to block PSA from setting up in AU as a key competitor,” Brayshaw wrote.
But other scenarios could also play out, including that the takeover offer fails to win an endorsement from Abacus Storage’s board and is not put to shareholders, according to analysts.
Citi’s Howard Penny noted that Ki Corporation has previously said that if the takeover proposal fails, it wouldn’t contribute further capital to Abacus Storage nor support higher debt levels nor asset sales. That could potentially frustrate investment in growth, which would then rely on support from a reduced distribution which, Penny wrote, “would be a negative to all shareholders”.
