Groundhog Day for Shaftesbury and Tak Lee?

Hong Kong billionaire Sammy Tak Lee has once again said he plans to block any future share issues from Shaftesbury. He has asked the firm’s other shareholders to rally to his cause when they meet at the firm’s annual general meeting next week. Lee, who owns a 26.15% stake in the owner of 14.5 acres of London’s West End, is in the process of repeating the same protest he made in 2018. He has issued a letter to shareholders of Shaftesbury informing them that he intends to vote against three resolutions affecting its ability to issue shares. 2018 all over again? Last year, Lee did not manage to garner much support for voting against the three resolutions, with the number of votes against passing the resolutions only registering between 27.5% and 29.8% of the votes cast. However, he did manage to block the firm’s ability to allot shares in certain circumstances. Previously, once a year, for up to 10% of its market cap, Shaftesbury could offer shares exclusively to a small number of large institutional investors rather than the whole shareholder base. In such issuances, the holdings of private shareholders such as Lee are watered down. Shaftesbury has said that, while Lee could again block it from being able to do this for another year if he votes against resolutions 19 and 20 at the AGM next Friday (8 February), he is unlikely to be able to stop a general rights issue to all of its shareholders. This is because resolution 18, which would allow existing shareholders to purchase new additional shares in the company, requires only 50% of the votes cast to be in favour for it to be passed, while resolutions 19 and 20 need 75%. As a result, Lee, with his 26.15% shareholding, could block these. If resolutions 19 and 20 are not passed, the firm would need to arrange separate general meetings to gain approval from shareholders to issue shares, which it argues would be time-consuming and costly. However, Shaftesbury has also said that currently there are no plans for any new share placings. This déjà vu stems from Lee’s continued unhappiness with Shaftesbury’s board over a share placing carried out in December 2017. The placing was made using a cash box structure that allowed it to raise around £260m by bypassing pre-emption requirements, which was a tenth of its £2.6bn market cap at the time. Lee alleges in his January 2019 letter to Shaftesbury’s other shareholders that the business was not under any financial strain at the time. He adds that he had sufficient cash and debt facilities to fund the specific investments that were given as reasons for the 2017 placing. He also argues that the 2017 share placing was “motivated by a desire to dilute his interest” in the company, which at the time stood at around 17%. Shaftesbury denies this. Lee claims: “Pre-existing shareholders collectively suffered a significant and immediate loss in the value of their shareholdings by virtue of the direct equity raising costs, the dilutive effect of the issue and Shaftesbury’s resulting less efficient capital structure.” Lee continues that Shaftesbury’s board has remained “reluctant” to engage with him in writing to explain the reasons behind decisions they have taken. And he asserts that Shaftesbury’s board cannot be relied upon to act in the best interests of its shareholders in undertaking future share issues and therefore wants to make sure they cannot do so. Shaftesbury rebuttal Shaftesbury has responded to Lee’s latest letter by pointing out that the 2017 share placing only reduced its EPRA net asset value per share by 1.7p, equating to 0.18%, and that Lee’s assertion that Shaftesbury was seeking to dilute his stake is “not true”. After being invited to participate, Lee received an allocation of 98.4% of the shares he applied for despite the placing being oversubscribed, Shaftesbury claims. The business refutes Lee’s claim that it had refused to engage with him, reporting that over the past 14 months it had responded “promptly and appropriately to numerous letters from Mr Lee’s lawyers”. Shaftesbury alleges that it had also received a number of data subject access requests under data protection legislation from Mr Lee’s lawyers, mainly in connection with the 2017 share placing, which the firm says required “extensive investigation and production of material”. This includes a letter from Lee’s lawyers in November that accused Shaftesbury’s directors of attempting to “alter the constitutional balance” of the company with the 2017 share placing, which the letter added was a “breach of their fiduciary duty”. And the beat goes on This latest chapter in the saga of Samuel Tak Lee and Shaftesbury could possibly see Lee become more of a thorn in Shaftesbury’s side. Lee is poised to stop the management being able to raise funds in a cash box for another year and instead make it raise funds through a full rights issue, which is a more costly and longer process. Indeed, Lee boosted his stake in October last year from 25% to his current holding of 26.15%. However, Shaftesbury, in its struggle to find a harmonious footing with Lee, could have an ally in Norges Bank Investment Management, which over the past year has made moves to acquire a stake to rival Lee’s. Last year, it bought Invesco’s 8.2% stake in the company for £234m, pushing its holding up from 12.7% to 20.86%, and acquired further shares in November to take its stake to 24.5%. All eyes will be on the Ham Yard Hotel in Soho next week, where Shaftesbury is holding its AGM, to see how this latest move by Tak Lee plays out. To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette