Hong Kong billionaire Sammy Tak Lee is attempting to block future share issues from Shaftesbury ahead of its AGM.
Lee owns 25.02% of Shaftesbury’s issued shares, and is the owner of the Langham Estate, which is close to Shaftesbury’s West End of London holdings. He issued a letter on 29 January expressing concerns about the company’s non pre-emptive share issue at the end of 2017 (see below).
He wrote: “I do not believe the board can be relied upon to consider the best interests of its shareholders when undertaking future share issues.”
He said that Shaftesbury has undertaken non pre-emptive placings of around10% of its issued share capital three times over the last seven years and that institutional owners have mostly benefited, which has not treated individual shareholders fairly.
“In this instance, I believe that Shaftesbury’s board failed to take adequate account of what was in the best interests of all its shareholders, both institutional and individual,” he wrote.
As a result, he said he would vote against resolutions 16,17 and 18 at the company’s AGM on 9 February. These essentially allow the company to issue more shares.
Ordinary resolution
Resolution 16 is a an “ordinary resolution authorising the directors to allot shares in the capital of the company” and needs 50% of votes to be passed, so Lee cannot block it acting alone.
Resolutions 17 and 18 are special resolutions letting directors allot shares in certain circumstances on a non pre-emptive basis, and require 75% of shareholders voting in approval.
As a result, Lee, with his 25.02%, could block the resolution.
Shaftesbury refutes claim
Shaftesbury has refuted all of Lee’s claim of impropriety.
Chairman Jonathan Nicholls said: “The board does not agree with the statements made and sentiments expressed by Mr Lee in the attached letter to shareholders, but respects his right and stated intention to vote against certain resolutions being proposed at the forthcoming annual general meeting.
“The board will continue its long and respected stewardship of this Company’s exceptional business, which continues to deliver sector-leading, long-term returns for shareholders, and will be guided at all times by its clear fiduciary duties owed to shareholders as a whole to promote the long-term success of the Company.”
The letters stems stem from the issue of a “non pre-emptive share offering” at the end of last year at a discount to fund £133m of recent purchase.
Shaftesbury says Lee was fully engaged with, was offered and bought shares that maintained his existing holdings in the company.
Eyeing a takeover
Lee has been flirting with a Shaftesbury takeover for some time.
In July 2015 he launched an offer to buy up to 9.3% of the company’s issued share capital at 888 pence per share, 2.1% over the share price. The tender offer was withdrawn, because the minimum level of acceptances was not reached.
The majority of Mr Lee’s current interest in the company’s shares has been acquired through market purchases since June 2016.
Nicholls said: “The board continues to consider that all of the resolutions to be proposed in the notice of AGM are in the best interests of the company and its shareholders as a whole and they unanimously recommend that shareholders vote in favour of them.”
Lee’s full letter, delivered to shareholders on 29 January:
Dear Shaftesbury shareholder,
I write as the ultimate beneficial owner of approximately 25% of the issued share capital of Shaftesbury. I am concerned to ensure the development and success of Shaftesbury in the interests of all its shareholders.
The Placing
On 6 December 2017, Shaftesbury undertook a placing of 27,855,508 new shares, amounting to 9.98% of its then issued share capital (the “Placing”). The Placing was carried out on a non-pre-emptive basis at a 6.59% discount to the prevailing share price. The combination of a non-pre-emptive offering at a material discount to the market price and the manner in which shares were then allocated has caused me great concern.
I fundamentally believe that the Shaftesbury board of directors had a duty to consider at the time of the Placing whether such a non-pre-emptive share issue was necessary, whether it was in the best interests of its shareholders as a whole, and how it should be conducted (regardless of whether it may be claimed to be conducted in accordance with the strict letter of the Listing Rules, the Pre-Emption Statement of Principles or the shareholder authorities granted at the 2017 AGM). I believe placings of this nature can be inequitable and prejudicial to existing shareholders for the following reasons:
■ shares may not be offered to all existing owners of the company pro rata to their existing shareholdings;
■ when shares are issued at a discount to the prevailing market price, the only shareholders who benefit are those who are invited to and able to, participate; and
■ the extremely short time period within which such offerings are typically conducted makes it very challenging for non-institutional investors who are offered the opportunity to participate, to be able to do so.
Shareholders should note that Shaftesbury has undertaken non-pre-emptive placings of approximately 10% of its issued share capital on three occasions in the last seven years. The principal recipients of the new shares have been institutional investors, thus in my view compounding the inequitable treatment of existing non-institutional shareholders. This is a significantly higher level of share issues than undertaken by similar UK REITs.
In this instance, I believe that Shaftesbury’s board failed to take adequate account of what was in the best interests of all of its shareholders, both institutional and individual.
Dialogue with Shaftesbury board
I have endeavoured to engage with the Shaftesbury board in order to express my concerns. I have asked a number of specific questions over the Placing in order to try to understand the board’s actions and the treatment of shareholders, but the responses I received have not adequately addressed my concerns.
Absence of consideration of fiduciary duties
On many points, the board has simply refused to provide information, in reliance upon implausible confidentiality obligations. On others, its responses have heightened my fears. In a letter dated 15 January 2018, Shaftesbury’s solicitors, Hogan Lovells, wrote in relation to the Placing that:
“the company and the joint bookrunners had complete discretion in the allocation of shares and had no legal obligations to any existing shareholders in the company in respect of such allocation.”
People sometimes defend statements which are quoted back at them by saying they were taken out of context. I assure you this statement is entirely within the overall context of that letter.
In response to that letter, I expressed my astonishment that the directors of a listed company could believe that they need have no concern for its existing shareholders when deciding how to exercise the fiduciary powers entrusted to them. Hogan Lovells responded on 25 January 2018 that the Shaftesbury board was “completely satisfied that it had discharged its fiduciary duties properly” in relation to the Placing. I cannot see how this can be consistent with the board’s belief that it “had complete discretion in the allocation of shares and had no legal obligations to any existing shareholders”. I consider that the equitable treatment of all shareholders should be a fundamental concern of directors in considering and conducting any new issue of shares, let alone in relation to a placing. Moreover, Shaftesbury is a REIT and so affords significant benefits to its shareholders; if its board shows no proper concern for them, at least some of their benefits may be lost through the dilution of shareholdings.
My intentions
In the absence of any satisfactory explanation from the board to my specific questions over the Placing and in the light of the board’s position quoted above, I do not believe the board can be relied upon to consider the best interests of its shareholders when undertaking future share issues. I note the highly influential Pensions and Lifetime Savings Association Corporate Governance Policy and Voting Guidelines published on 25 January 2018 which only support disapplication of pre-emption rights:
“where a clear case is made for these not being applied in the context of the best interests of all of the owners of the Company concerned.”
I do not believe a clear case has been shown.
Whilst I have never before exercised any right to vote at a Shaftesbury shareholder meeting, given the circumstances, at the forthcoming Shaftesbury AGM, the shareholders that I ultimately own will be voting against resolutions 16, 17 and 18, which propose to renew the board’s right to undertake further issues of shares, whether on a pre-emptive basis or otherwise. I would encourage all other shareholders who wish to avoid dilution as a result of new issues of shares to consider doing likewise.
I am a long-term direct investor in prime West End real estate, with a profound appreciation for the intrinsic value of land. My own experiences following the Placing have led me to the view that the board needs to rethink both its desire for additional capital from shareholders and, if thought necessary, the means by which such capital might be obtained.
Yours faithfully
Samuel Tak Lee
To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette
