Update: The board of Urban Logistics (SHED ) is on the brink of accepting a £674m takeover bid from LondonMetric Propery (LMP).

The board of SHED said yesterday afternoon that it is ‘minded to recommend’ a LondonMetric cash and share bid that values the entire real estate investment trust (Reit) at £674m.

The news caused SHED’s shares to soar 8% on Monday, just days after the FTSE 100 member LondonMetric made a preliminary approach for an undisclosed sum. On Tuesday, SHED’s shares were up a further 1.8% at 141p at 9am. 

Investors would receive 0.5612 LondonMetric shares and 42.8p in cash for each SHED share they hold, based on LondonMetric’s closing share price of 182.1p on Friday.

The revised offer values SHED shares at 145p per share, which is a 17% premium to its share price of 123.4p on 10 April, which was the last business day before the offer period started. It is also a 23% premium to the average share price over the past three months.

Under the terms of the deal, SHED investors would retain the second-half dividend to be paid in July, which is expected to be 4.35p.

The £674m is still below the £753m net asset value (NAV) of the portfolio of last-mile distribution centres, which play an important role in ecommerce.

SHED’s board, which is chaired by Nigel Rich, said it had ‘carefully considered the proposal and has indicated to LondonMetric that…it would be minded to recommend such an offer’. LondonMetric will now undertake a period of due diligence.

The board said SHED’s shareholders will benefit from an ‘attractive uplift in value, with approximately 30% de-risked via the cash consideration, and meaningful accretion in earnings and dividends per share in respect of the share consideration’.

They will also continue to participate in the logistics sector, given it would represent 54% of the combined £7.3bn portfolio, and benefit from increased liquidity.

LondonMetric, which is run by chief executive Andrew Jones, said in a previous stock market announcement that shareholders in Urban Logistics would benefit from ‘superior scale’ and enjoy exposure to a ‘larger, more diverse portfolio, focused on structurally supported sectors and assets that enjoy high barriers to entry’.

The property investor also flagged the ‘strong income characteristics’ and ‘sector-leading weighted unexpired lease term of 19 years, fully occupied, and high-quality occupier covenants’ of the LondonMetric portfolio.

It added that it has access to cheaper financing and an efficient cost structure.

Achilles’ intervention

LondonMetric also made mention of its internal management structure versus Urban Logistics’ external management company, Logistics Asset Management, which had drawn the attention of activist Achilles (AIC ) in recent weeks.

Newly-formed trust Achilles, which was launched by Chris Mills and Robert Naylor, the team that managed a successful exit for Hipgnosis Songs (SONG ) investors, has already taken Urban Logistics to task over what it believes is a conflict of interest regarding manager Richard Moffitt.

Moffitt is not only the chief executive of Logistics Asset Management but also a partner in M1 Agency, which offers specialist advice and services to logistics investors, M1 had previously been employed by Urban Logistics.

Urban Logistics said the £6.3m of fees paid to M1 Agency over the four years to 31 March 2024 were appropriate and compliant.

The board of SHED said it would pause its proposals to internalise its management function in light of the LondonMetric bid, and it was further confirmed that Achilles had withdrawn the requisition put forward with Waverton Investment Management and TR Property (TRY ) in an attempt to replace the board.

Acquisitive streak

Recent years have seen LondonMetric ramp up the acquisitions that have propelled it into the FTSE 100. Earlier this month it acquired Highcroft Reit, which is listed on the International Stock Exchange, for £43.8m. This followed last year’s £1.9bn acquisition of LXI Reit and takeover of the £198m CT Property trust from Columbia Threadneedle.

John Cahill, analyst at Stifel, said a takeover of Urban Logistics would be the ‘latest in an increasingly long line of takeovers by LondonMetric’.

Cahill added that LondonMetric would have ‘no difficulty executing its tried-and-tested takeover model’. This involves acquiring at a discount, eliminating all legacy corporate costs, immediately folding in core assets, rapidly selling non-core assets at book value and then distributing earnings to shareholders via an increased dividend.