The bid by Custodian Property Income (CREI ) for Abrdn Property Income (API ) has failed to gain the required 75% support of API shares meaning fund manager Abrdn will retain the £300m portfolio in a managed wind-down likely to last about two years.

David MacLellan, chair of CREI, said he was ‘disappointed’ that votes in favour from 60.8% and 61.4% of API shares at yesterday’s court and general meetings were insufficient for the merger to proceed.

API shares dropped 5.9%, or 3.2p, to 51p in early trading and CREI jumped 10%, or 7.7p, to 83p, close to the level before the proposed transaction was unveiled.

The proposal to combine CREI and API and forge a real estate investment trust of about £700m had been approved by the boards of both companies and CREI shareholders but required the backing of 75% by value of API shares and a majority of  API shareholders voting at the court meeting to proceed.

It passed the latter hurdle with 86.1%, or 112, shareholders voting for the deal at the court meeting. Turnout was low, however, with just over 36% of shares voted in both meetings.

‘In fact, shareholders accounting for just 14% of API’s register proved sufficient to prevent the resolutions passing,’ said MacLellan. ‘These votes were, we understand, primarily from institutional investors who believe a “managed wind-down” of API’s portfolio will better protect shareholder value, despite the API board clearly and publicly setting out the flaws in this conclusion.’

Earlier this month API’s chair James Clifton-Brown cautioned that while improving commercial property market conditions made a gradual disposal of the industrials-heavy portfolio more ‘viable’, it was fraught with risk.

Critics of the scheme, including analysts at QuotedData and arbitrageur Andrew Pegge, pointed to this month’s sale of two properties at near asset value to argue that a wind-down would ultimately deliver better value for shareholders given the all-share transaction recently valued API at around a 30% discount to asset value.

Clifton-Brown countered that the best and easiest-to-sell properties had been sold first and the ‘par’ price achieved could not necessarily be repeated across the entire portfolio.

In a statement after the result, he said that in light of the challenge the company would face as a small standalone real estate investment trust on a wide discount, API would be put into a managed wind-down, subject to a further shareholder vote, ‘with the objective of delivering enhanced returns for API shareholders’.

MacLellan said CREI would continue its strategy of investing in regional, smaller lots well positioned to deliver rental growth and an attractive, covered dividend.