In the 25-plus years I have been involved with the management of FTSE 250-listed investment trust TR Property (TRY ), we have supported boards on numerous occasions as corporate actions unfolded. Typically, these engagements occur discreetly and yield outcomes which we believe are in the interests of shareholders.

But the proposed all-share takeover of UK Commercial Property (UKCM ) by Tritax Big Box (BBOX ) leads me to break with convention to publicly highlight my reservations about the deal. I am in good company: UKCM’s experienced chairman, Peter Pereira Gray, is emphatically objecting to the merger saying that he believes that ‘other parties would have come forward had there been a more open and comprehensive sales process’.

Pereira Gray continued: ‘This could have led to… a potentially improved proposal for UKCM.’

A person to heed

Pereira Gray is no publicity-hungry chancer. He joined UKCM’s board in 2023 following a two-decade career at the Wellcome Trust, where latterly he was chief executive of investments. During his tenure, the charitable foundation’s assets grew from £13.5bn to £38.2bn with notable involvement in property companies including IQ Student Housing and Urban&Civic. We were heartened when such a high-calibre individual joined the UKCM board. In short, Pereira Gray is a person whose views should be heeded.

TR Property owns stakes in more than 50 listed European property companies and has actively supported M&A activity. In the UK, we recently backed deals involving McKay Securities, Ediston Property Investment Company, CT Property Trust and Industrials Reit. But a scenario where a respected chairman dissents, and the transaction proceeds nonetheless, is unprecedented.

As investors in BBOX and UKCM – holding 3.5% of the latter’s issued share capital – we perceive both companies as effectively managed entities with strong portfolios. But the proposed deal, which would create the UK’s fourth-largest Reit, does have some idiosyncrasies which become heightened when considered alongside a glaring absence of board consensus.

Abrdn’s role

One sensitivity is Abrdn’s presence on both sides of the transaction. Abrdn serves as the external manager for UKCM, and it also manages a significant pool of assets for UKCM’s largest shareholder, Phoenix Life, which has now pledged its support for the deal.

Abrdn also possesses a controlling interest in Tritax, the external manager of BBOX. Abrdn has commendably said it will waive a £6.7m termination fee that UKCM would be obligated to pay, but the fact remains that the asset manager would be an ongoing beneficiary of the combined group’s higher management fee.

The proposed combination would also herald a massive strategic change for UKCM shareholders. BBOX is a warehouse purist with an attractive development pipeline which requires funding. Meanwhile, UKCM has the lowest leverage of any listed UK property company and while its portfolio is industrials-heavy, it also owns retail spaces, offices, hotels, and student halls. BBOX has stated that it has no intention of being the long-term owner of these ‘non-logistics assets’ which make up 39% of UKCM’s holdings.

We do not know

The party line from the UKCM and BBOX boards is that the combined group will benefit from cost synergies and improved liquidity. These arguments are not without merit but the point is not that this deal is necessarily a terrible one. It is simply that, in the words of the chairman, we ‘[do] not know that this is the highest price or best value that could be achieved for all UKCM shareholders in other circumstances and given a longer time period’.

Ironically it is another Abrdn-managed Reit, Abrdn European Logistics Income (ASLI ), that, along with Ediston, has shown best-in-class governance. The independent boards of both those companies publicly announced strategic reviews, with the aim of addressing discounts and enhancing shareholder value through an open review process.

Whilst I believe the UKCM board has waved the white flag too soon, whether Tritax Big Box’s offer proves to be a boon or a bane for UKCM shareholders remains to be seen. But we cannot get away from the fact that boards are entrusted with making major decisions on behalf of all shareholders. When consensus eludes them, a re-evaluation is needed.

Marcus Phayre-Mudge is writing in his capacity as fund manager of TR Property (TRY ) investment trust. 

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