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Barclay brothers eye £600m office group LEO

The Barclay brothers receiving their knighthoods in 2000

By Mark Kleinman, City Editor

The reclusive proprietors of The Daily Telegraph are plotting a £600m takeover of an upmarket serviced office operator that is competing for business against WeWork and other rival start-ups.

Sky News has learnt that Ellerman Investments, a vehicle owned by Sir David Barclay and his twin brother and Sir Frederick, are among a pack of bidders for London Executive Offices (LEO).

Binding offers for LEO, which is owned by Queensgate Investments, are expected early next month and are likely to draw interest from a number of parties in the Far East, according to insiders.

If the Barclays succeed with their bid, it would add LEO to a business empire which includes the Ritz hotel in London, the online retailer Shop Direct and the Daily and Sunday Telegraph newspapers.

Long-rumoured as likely sellers of the newspapers, the brothers conducted an auction of Shop Direct earlier this year, but cancelled talks after buyers refused to pay a roughly £3bn asking price.

The outcome of the auction of LEO is likely to offer a glimpse into investors' views of the prospects for London's post-Brexit commercial property sector.

Queensgate was originally reported to have been seeking bids of £700m or more for the company, but numerous property industry sources believe that bids will be tabled below that level.

LEO operates 32 sites across the capital, and has tapped into an increasingly popular means of sourcing office space, alongside the likes of IWG – formerly known as Regus.

The company describes its portfolio of properties in Mayfair, Belgravia and the City as "iconic" and differentiates itself from rivals by offering much grander – and more expensive – space than that aimed at a new generation of technology start-ups.

WeWork, the richly valued start-up which has been acquiring prominent buildings in London, New York and other major international cities, has been reported to be aiming to tap into lingering Brexit uncertainty within large banks by selling them flexible office space.

Queensgate, which had been working with Lazard on the LEO auction, is now being advised by Citi and HSBC, with the latter tasked with securing takeover interest from Asia.

Lazard was originally hired within months of Britain's vote to leave the European Union, with analysts forecasting an uncertain outlook for the City's commercial property market.

Since then, a number of trophy real estate assets in London – including buildings nicknamed the Cheesegrater and Walkie-Talkie – have changed hands for higher-than-expected prices.

In June, The Office Group, another UK-based provider of flexible workspace, was sold to Blackstone, the world's biggest property investor, in a £500m deal.

Those transactions reassured property companies about the prospects for the London and wider UK markets in the lead-up to Brexit.

However, a recent spate of announcements from big City employers such as Morgan Stanley and Bank of America Merrill Lynch about the relocation of jobs from London have cast those prospects in a different light.

LEO is the largest 5-star serviced office company of scale in the UK, charging premium prices because of the locations it owns and the add-on services it provides.

It trades from locations such as Pall Mall, St James's Square and Bishopsgate, home to some of the most expensive property in London.

The company, which recently changed its chief executive, says it has more than 3,000 customers ranging from blue-chip multinationals to start-ups.

In accounts filed at Companies House, LEO said it made a profit last year of £9.1m, against a loss in 2015 of £2.6m.

A Queensgate spokeswoman declined to comment on the identity of the bidders for LEO or the company's price tag, while a spokesman for Ellerman also declined to comment.

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