Activist hedge Saba Capital has written a second open letter to the shareholders of Workspace Group (WKP), urging them to support the election of a new board and for the flexible office space provider to undertake a three-stage wind-down strategy.
Acknowledging that its approach to Workspace had “evolved” as it built up a 24.7% stake in the £665m company since last August and since it launched its campaign in a first letter in January, Saba insisted that a significant disposal programme allied with share buybacks was the best way to restore shareholder value with WKP shares trading 50% below net asset value.
At that level, Saba partner Paul Kazarian said shareholders could make a 100% return on its strategy which he claimed was a lower-risk option than the recovery plan outlined by new chief executive Charlie Green at Workspace’s annual results last week.
Kazarian said Workspace had rejected Saba’s proposal as a “fire sale” which he said was “entirely inaccurate” given the company had sold or exchanged 13 properties at an average discount of 7.2% to book value.
“Furthermore, our analysis, supported by independent real estate experts, indicates that the market remains interested in a significantly accelerated disposal programme, above the company’s conservative plans,” Kazarian wrote.
Alongside asset sales and buybacks, Saba would outsource property management to lift occupancy, enhance operational efficiency and cut costs and implement a more “disciplined” refurbishment programme focused on selected assets to re-lease or prepare them for sale.
“The time has come for the incumbent, non-executive directors to step aside and focus on preserving shareholder value rather than preserving their positions,” said Kazarian, urging shareholders to vote for Saba’s six nominees: Greg Attwood, Nick Shattock, Andrew Sim, Richard Starr, Gautam Garg and Simon Hampton.
Saba is the second largest shareholder behind property developer Nicholas Roditi who holds 29% through London & Amsterdam Trust, making him pivotal in the debate over Workspace’s future.
Our view
Matthew Read, senior analyst at QuotedData, said: “While Saba’s latest plan for Workspace is more polished than its original demand for a rapid wind-down, the central problem remains. Saba continues to present the gap between Workspace’s share price and NAV as if it can be mechanically harvested by selling assets and buying back shares, but this is overly simplistic. Yes, Workspace has sold assets at relatively modest discounts to book value, but there is a big difference between selective sales and a wholesale disposal programme conducted under activist pressure with Workspace viewed as a forced seller. Furthermore, it is still not obvious that replacing the entire non-executive board with Saba’s nominees would provide the stability shareholders need. Saba’s other idea about outsourcing property management functions is worth delving into, we would be interested to see the detail of this debated between Saba and the incumbent management team.”
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