Boxing clever for the London market

Times

5 days ago

Is the London stock market finally fighting back? Two days after Primary Health Properties gazumped KKR in the bid for Assura, look at this: Tritax Big Box Reit giving the shareholders of Warehouse Reit a shedload of reasons to turn down an offer from Blackstone. Who says UK-listed companies are too timid to take on big US cash buyers?
Selling out to Blackstone for £470 million cash, at 109p a share, never looked great for Warehouse. Since its September 2017 float, it has raised £425 million equity from investors to build a portfolio spanning 6.9 million sq ft: one ostensibly valued at £805 million and with an annual rent roll of £42.5 million.
It's in a go-go bit of the market, too: multi-let warehouses in urban locations, used by everyone from light manufacturers to ecommerce groups, where, thanks to planning constraints, demand outweighs supply. And, yet, here was the board, chaired by Neil Kirton, rolling over to Blackstone for a price at a 14.8 per cent discount to Warehouse's net asset value of 128p a share. In some ways it was worse than that, too. The board had succumbed even after the US asset manager cut its proposed 113½p offer after a row over Warehouse's Radway Green site near Crewe.
You don't have to be a shed aficionado, like Lord Cameron of Greensill, say, ensconced in his shepherd's hut, to spot how that sort of stock market exit for Warehouse was all a bit subpar. So, the board can thank Big Box for making things more interesting. Its chairman Aubrey Adams has delivered an alternative that would create a bigger, complementary listed business. Big Box is offering 0.4236 new shares for each of Warehouse's, 47.2p per share cash, and two quarterly 1.6p dividends: a total 114¼p a share, or £485 million.
Warehouse investors would take a chunk of cash and still hold 6.8 per cent of the bigger business, sharing in the upside and a swift £5.5 million of annual cost synergies. In short, enough for the Warehouse board to switch its recommendation to a Big Box bid at a 4.8 per cent premium to Blackstone's.
True, that didn't last long: Big Box shares fell 3 per cent to 146½p, repricing its offer at 112½p, just below Warehouse's 112¾p closing price, up 6 per cent. And, of course, Blackstone can afford to come back: the private equity and real estate giant is valued at $170 billion-plus.
Yet, do long-term investors really want to cash out at a price well below NAV, even if it is much less than the one-third discount Warehouse was trading at before Blackstone pitched up? Thanks to the share element of Big Box's bid, it was able to argue that, based on its own NAV of 185.6p per share, its offer was at a mere 1.7 per cent discount to Warehouse's NAV.
Shore Capital analysts reckon the Big Box bid is 'in tune with shareholder objectives' of 'long-term value over short-term cash'. And, while sell-side analysts have vested interests in keeping companies on the stock market, Shore has a case that the deal looks 'a good outcome' for both sides, with a bigger Big Box extending its 'offering' into 'last-mile urban' — a market it's been pursuing, as last year's purchase of UK Commercial Property Reit showed. Box clever and it could yet deliver a better outcome for the UK market, too.
So much for conserving energy. Global demand for every sort hit fresh records last year, in what looks a blow for the green lobby: far from displacing fossil fuels, renewable power is, for now, merely adding to them, with carbon emissions up again (page 38).
Who's crunched the numbers? The Energy Institute, whose annual review, showing a 2 per cent rise in total energy demand to a record 592 exajoules, is aglow with highlights.
Take this eyecatcher: for the first time since 2006, world production of coal, oil, gas, renewables, hydro and nuclear hit all-time highs last year. So, even if wind and solar power did expand by 16 per cent — nine times faster than total energy demand — it still wasn't enough to 'counterbalance rising demand elsewhere'. The upshot? Fossil fuel use rose 1 per cent, still making up 86.6 per cent of total demand, with emissions up 1 per cent: the fourth high in four years.
Amid that, China played the role of main goodie and baddie: the 'paradox', as the institute's Nick Wayth put it, of being 'both the world's biggest driver of clean energy growth and its largest source of emissions'. It was responsible for more than 60 per cent of all extra solar and wind capacity last year but still 'generated nearly 60 per cent of its electricity' from coal.
Meanwhile, even before the arrival of a 'drill, baby, drill' president, US oil production hit a new record of more than 20 million barrels a day to all but equal the combined output of Saudi Arabia and the Russian Federation.
Electricity demand growth, at 4 per cent, outpaced energy demand. But, with governments struggling to balance affordability, supply security and decarbonisation, you can see why Wayth calls it a 'disorderly transition', with emissions still moving 'in the wrong direction'. You don't have to be a Muppet to spot it's not easy being green.
Another day, another ridiculing for Rachel Reeves's claims that her budget did not affect 'working people'. This time it's from the British Chambers of Commerce, whose director general, Shevaun Haviland, will today unveil a survey of more than 570 businesses. Its key finding? That a third of them have 'either made staff redundant or are planning to as a direct result of the national insurance contributions increase'. Maybe they're not the sort of working people the chancellor had in mind.