Takeover Bid Roils Mini-Warehouse Industry Storage: Glendale-based Public Service says it’s ‘just been watching’ for now as rivals Shurgard and U-Haul jockey for position.

A nasty takeover battle is roiling the self-service storage business.

Glendale-based Public Storage Inc. is the industry’s leader, with 63 million square feet of rental space spread over 1,067 mini-warehouses in 38 states and Canada.

Shurgard Inc., a closely held Seattle company, is No. 2 with 15 million square feet in 220 locations.

And U-Haul International Inc. of Phoenix, the big truck-rental firm, is third with 13 million square feet and 667 facilities. But U-Haul, which is controlled by the Shoen family through its Amerco holding company, may quickly close that gap.

Two weeks ago U-Haul made a hostile $309-million tender offer for 139 self-service storage centers owned by 17 Shurgard limited partnerships.

On Monday, Shurgard formally rejected U-Haul’s bid. Instead, Shurgard urged its investors to approve Shurgard’s proposal announced last month to “roll up,” or consolidate, the partnerships into a publicly traded real estate investment trust.

The Shurgard prospectus for the proposed roll-up values the partnerships’ assets at $387.4 million, or 25% more than U-Haul’s offer.

Will Public Storage join the bidding?

“No comment,” said Harvey Lenkin, Public Storage vice president. Since the Securities and Exchange Commission approved Shurgard’s proposed roll-up this fall, “we’ve just been watching,” he said.

But U-Haul’s Executive Vice President Harry B. DeShong finds it hard to imagine that Public Storage will sit out the current fight entirely. “I would expect them to be a player somehow in the deal,” DeShong said, though he couldn’t guess how. “If there is some way to participate, they will.”

U-Haul’s offer is all cash. Shurgard’s roll-up proposal, however, gives investors the choice of exchanging their partnership units for shares of the new REIT or notes that mature in 2000. U-Haul’s offer expires Jan. 3. Shurgard’s roll-up offer is good until Jan. 28.

Earlier this year it appeared Public Storage was Shurgard’s big worry. But Shurgard chased away Public Storage when it informally approached Shurgard about buying an unspecified number of units in its partnerships for cash.

Shurgard responded by hiring the New York-based investment firm Merrill Lynch & Co. to help stave off an unwanted bid by Public Storage or any other third party.

Public Storage never pressed the issue by making a formal offer to Shurgard’s investors. “The reception we received (from Shurgard) caused us not to go any further,” Lenkin said.

Ironically, he added, “Shurgard seemed to mount all the defenses against us and it wasn’t us who attacked them.”

The battle between U-Haul and Shurgard heated up last week, when U-Haul sued Shurgard in Delaware Chancery Court. The suit claims that Shurgard mistreated investors in 15 of the partnerships by improperly amending the agreements that govern the partnerships. Shurgard sold the partnerships to investors between 1979 and 1986.

According to the suit, Shurgard made it harder for the investors to remove the partnerships’ general partners. Shurgard’s controlling shareholder and chief executive officer, Charles K. Barbo, is one of the general partners.

Shurgard responded to the suit with a letter to the investors denying the charge. Also, Shurgard’s letter said: “To suggest, as U-Haul has, that the consolidation is a dangerous scheme to enrich the General Partners at the expense of limited partners is patently untrue.”

Roll-ups are restructurings in which several limited partnerships, originally designed as long-term, non-traded investments, are combined into a new, publicly traded investment.

Shurgard has said it expects the “average potential value” of its new REIT’s shares to range from $861 to $1,072 a unit.

Roll-ups give partnership investors a way to get out before the seven to 10 years that partnerships usually last.

But investors have generally been big losers in previous roll-ups. They have often seen the prices of their new shares plummet as the market puts its own value on the underlying real estate.

Shurgard has said its partnerships involved are healthy. It estimates, however, that its properties would bring only 78% of the amount invested by the partners.

As a result of past roll-up abuses, California passed roll-up reform legislation last year. A new federal law dealing with roll-ups cleared Congress last month and is awaiting President Clinton’s signature. The goal of the new laws is to provide more protection for investors.

In its letter to investors Monday, Shurgard said its proposed roll-up complies with the new regulations.