West End landlords Capco and Shaftesbury in talks about £3.5bn merger

Two companies behind large swathes of London’s West End are in advanced talks about a £3.5bn merger that would unite world-famous tourist destinations, including Covent Garden and Chinatown under common ownership.

Sky News has learnt that Capital & Counties Properties – also known as Capco – and Shaftesbury are in detailed discussions about an all-share tie-up that could be announced within weeks.

If completed, the merger would bring together two of London’s most prominent landlords, creating a powerhouse of West End property ownership as the capital tries to navigate its way towards a successful post-pandemic future.

Capco is the landlord to shops and restaurants in Covent Garden, while Shaftesbury owns chunks of other prime central London landmarks, such as Carnaby Street, Chinatown and Seven Dials.

Speculation about a tie-up between the two companies has persisted since May 2020, when Capco bought property tycoon Samuel Tak Lee’s 26% stake in Shaftesbury for £436m.

One analyst said that Norges Bank, Norway’s sovereign wealth fund, was likely to be an instrumental player in a merger, owing to its large stakes in both Capco and Shaftesbury.

Both Capco and Shaftesbury were hit hard by the coronavirus pandemic, with the latter raising about £300m from a share sale in the autumn of 2020.

Capco participated in that cash call on a pro rate basis, enabling it to maintain its stake.

The Covent Garden owner lost over a quarter of its value in 2020, reflecting the sharp decline in visitor numbers during the early stages of the COVID-19 crisis.

Many commercial property-owners were forced to step in to provide rent relief to retailers and hospitality businesses two years ago, with dozens of prominent store and restaurant chains collapsing.

Among the casualties which either fell into administration or implemented restructuring plans that hit creditors including landlords were Debenhams, TopShop, Carluccio’s and Prezzo.

In recent months, though, landlords have struck a more upbeat tone, despite uncertainties caused by the Omicron variant and the shift towards hybrid working.

Shaftesbury said in February that its vacancy rate had fallen below 5% for the first time since the onset of the pandemic.

Ian Hawksworth, Capco chief executive, said during the same month that the outlook had become more positive.

“We are pleased with the strong level of leasing demand for Covent Garden which has contributed to a valuation uplift in the second half.

“With footfall continuing to increase, customer sales approaching 2019 levels and our creative approach, Covent Garden is the most vibrant district in the West End and is well-positioned for further rental growth,” he added.

On Friday, shares in Capco closed nearly 3% higher amid speculation that Capco could be a takeover target for an unnamed suitor.

The increase left Capco with a market capitalisation of about £1.37bn.

Shaftesbury, meanwhile, closed just under 1% lower at 577p, giving it a market value of £2.23bn.

Further details of the proposed merger structure, including the prospective leadership of the combined group, were unclear on Saturday morning.

However, both companies are likely to be forced to confirm the talks to the London Stock Exchange when it opens on Monday.

Mr Hawksworth and his opposite number at Shaftesbury, Brian Bickell, are both respected figures in the commercial property sector, although it is not certain that both would remain at a combined group.

There may also be scope for substantial cost synergies from the deal.

Capco’s history dates back to the 1930s, although it did not acquire Covent Garden’s Piazza until 2006, while Shatesbury, which owns 16 acres in the West End, was founded in 1985, floating in London the following year.

Capco is understood to be being advised by bankers at Rothschild, while Blackdown Partners and Evercore Partners are advising Shaftesbury.

Shaftesbury declined to comment, while Capco has been contacted for comment.