RECOMMENDED OFFER for MCKAY SECURITIES PLC by WORKSPACE GROUP PLC
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
Summary
The boards of directors of McKay Securities Plc (“McKay”) and Workspace Group Plc (“Workspace”) are pleased to announce that they have reached agreement on the terms and conditions of a recommended offer to be made by Workspace for the entire issued, and to be issued, ordinary share capital of McKay. It is intended that the Acquisition will be implemented by way of a scheme of arrangement under Part 26 of the Companies Act.
Key Terms
Under the terms of the Acquisition, each McKay Shareholder will be entitled to receive:
for each McKay Share: 209 pence in cash
and
0.115 New Workspace Shares
On the basis of the Closing Price per Workspace Share of 769 pence on 1 March 2022, being the last Business Day prior to the date of this Announcement, the Acquisition values each McKay Share at 297 pence and the entire issued and to be issued share capital of McKay at approximately £272 million on a fully diluted basis.
On the basis of the 3-month VWAP of 818 pence per Workspace Share on 1 March 2022, being the last Business Day prior to the date of this Announcement, the Acquisition values each McKay Share at 303 pence and the entire issued and to be issued share capital of McKay at approximately £277 million on a fully diluted basis.
The Acquisition represents, based on the 3-month VWAP of 818 pence per Workspace Share on 1 March 2022 (being the last Business Day prior to the date of this Announcement):
- a premium of approximately 36.2 per cent. to the Closing Price of 223 pence per McKay Share on 1 March 2022 (being the last Business Day prior to the date of this Announcement);
- a premium of approximately 34.5 per cent. to the 3-month VWAP of 225 pence per McKay Share on 1 March 2022 (being the last Business Day prior to the date of this Announcement); and
- a discount of approximately 7.0 per cent. to McKay's estimated Net Tangible Assets, adjusted for prepayment costs in relation to the Aviva Term Loan, of 326 pence per McKay Share as at 31 January 2022.
Immediately following completion of the Acquisition, existing Workspace Shareholders will hold approximately 95 per cent. of the Enlarged Group and McKay Shareholders will hold approximately 5 per cent. of the Enlarged Group.
Background to and reasons for the Acquisition
The Workspace Board believes there is a strong strategic, operational and financial rationale for the Acquisition, providing a highly attractive investment case. In particular:
- Workspace will be a larger and more resilient company with enhanced income and capital growth prospects and gross property assets of £2.9 billion, comprising 84 per cent. London office, 10 per cent. light industrial, 5 per cent. South-East office and 1 per cent. other;
- the Acquisition will, by applying Workspace's proven operational model and flexible lease offer, increase Workspace's ability to capture the strong demand in London and selectively extend its reach into the South-East;
- the Acquisition will provide the opportunity to unlock corporate and operational synergies;
- the Acquisition is expected to be earnings accretive from year two and the Workspace Board believes it will enhance earnings and dividend growth over the medium term; and
- Workspace will continue to operate with a conservative level of leverage. While the Acquisition will initially take the Enlarged Group's loan to value (LTV) to 32 per cent. on a pro forma basis, the Workspace Board is committed to maintaining LTV below 30 per cent. in the medium term.
Recommendation, Irrevocable Undertakings and Letter of Intent
The McKay Directors, who have been so advised by Rothschild & Co as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its financial advice, Rothschild & Co has taken into account the commercial assessments of the McKay Directors. Rothschild & Co is providing independent financial advice to the McKay Directors for the purposes of Rule 3 of the Code.
Accordingly, the McKay Directors intend to recommend unanimously that McKay Shareholders vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting, as the McKay Directors have irrevocably undertaken to do in respect of their own legal and/or beneficial holdings which are under their control of 298,280 McKay Shares in aggregate, representing approximately 0.3 per cent. of McKay's issued share capital on 1 March 2022 (being the last Business Day prior to the date of this Announcement).
In addition to the irrevocable undertakings referred to above, Workspace has received irrevocable undertakings to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting from McKay Shareholders in respect of 19,639,879 McKay Shares, representing approximately 21.8 per cent. of McKay's issued share capital as at 1 March 2022 (being the last Business Day prior to the date of this Announcement).
In addition, Aberforth Partners LLP has given to Workspace a non-binding letter of intent to vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting in respect of 13,402,943 McKay Shares representing approximately 14.9 per cent. of McKay's issued share capital as at 1 March 2022 (being the last Business Day prior to the date of this Announcement).
Accordingly, Workspace has received irrevocable undertakings and a letter of intent in respect of a total of 33,341,102 McKay Shares representing, in aggregate, approximately 37.0 per cent. of McKay's issued share capital on 1 March 2022 (being the last Business Day prior to the date of this Announcement). Further details of the irrevocable undertakings are set out in Appendix 3 to this Announcement.
Information on Workspace
Workspace is a FTSE 250 REIT and one of London's leading providers of flexible office space. Workspace owns and manages approximately four million sq. ft. of business space across 59 properties in dynamic London locations. Workspace is home to thousands of London's brightest businesses, including fast-growing and established brands across a wide range of sectors.
Workspace delivers capital and income growth from its distinctive flexible operating model, expertise in urban regeneration, active asset management and a focus on customer experience. It drives rental growth on its like-for-like portfolio, executes an ongoing programme of refurbishments and redevelopments to sustainably enhance and expand assets in line with customers' changing requirements, as well as growing its footprint through selective acquisitions.
Information on McKay
McKay is a commercial property investment company with REIT status specialising in the development, refurbishment and management of office, industrial and logistics property in the South East and London.
McKay's strategy is to invest in well located, quality commercial real estate assets with income and capital growth potential over the longer term, realisable through active portfolio management, refurbishment and development.
Transaction Structure and Timetable
It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement of McKay under Part 26 of the Companies Act, further details of which are contained in the full text of this Announcement and full details of which will be set out in the Scheme Document. However, Workspace reserves the right, subject to the terms of the Co-operation Agreement and with the consent of the Panel, to implement the Acquisition by way of a Takeover Offer.
The Acquisition will be subject to the Conditions and certain further terms set out in Appendix 1 to this Announcement and to the full terms and conditions which will be set out in the Scheme Document, including the approval of the Scheme by the Scheme Shareholders and the sanction of the Scheme by the Court.
The Scheme Document will include full details of the Scheme and the Acquisition, together with notices of the Court Meeting and the General Meeting and the expected timetable of the Scheme, and will specify the action to be taken by McKay Shareholders. It is expected that the Scheme Document will be despatched to McKay Shareholders in March 2022 and in any event within 28 days of this Announcement (unless otherwise agreed by the Panel, Workspace and McKay).
The Scheme is expected to become Effective during May 2022, subject to the satisfaction or, where applicable, waiver of the Conditions and certain further terms set out in Appendix 1 to this Announcement.
Commenting on the Acquisition, Richard Grainger, Chair of McKay said:
“The McKay Board's recommendation of the Acquisition follows a detailed and rigorous review during which we considered a broad range of options to unlock value for McKay Shareholders and which determined Workspace's proposal to be the most attractive. The offer from Workspace provides McKay Shareholders with an opportunity to receive a return which values the business substantially above where it has been trading historically with a substantial proportion of this return payable in cash. It also provides McKay Shareholders with the opportunity to participate in the future success of the enlarged and well capitalised Workspace Group, whose business model is well placed to meet post Covid-19 demand for high quality, flexible business space.”
Commenting on the Acquisition, Graham Clemett, Chief Executive Officer of Workspace said:
“The market for office space is shifting, with businesses prioritising greater flexibility and the right location for their teams. This Acquisition is a fantastic opportunity to accelerate our growth plans by capturing more of the strong demand we are seeing for our flexible offer in London, whilst selectively extending our reach into attractive commercial locations in the South-East. We will be a larger, more resilient company with an enhanced financial profile, and by applying our proven operational model and expertise, we expect to generate strong returns from McKay's portfolio of high-quality assets over the medium term.”