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WeWork rival IWG's founder Dixon plots £2.2bn break-up

The founder of International Workplace Group (IWG (LSE: IWG.L - news) ), the serviced offices giant which competes with WeWork, is plotting a £2.2bn break-up that could see its property portfolio eventually sold to outside investors.

Sky News has learnt that Mark Dixon, IWG's ‎chief executive and biggest shareholder, is drawing up plans to split the company in two in an attempt to unlock hundreds of millions of pounds in value.

The discussions are at an exploratory stage, but could lead to an announ‎cement before the end of the year, according to banking sources.

Mr Dixon, who has been left frustrated by‎ two abandoned takeover processes in the last 12 months, is said to be keen to pursue the break-up plan, which is likely to gain the support of major independent shareholders.

Under the proposals being examined by its board, IWG, which owns the Regus (Other OTC: RGSJF - news) and Spaces serviced office brands, would carve out its property estate, leaving the rest of its business focused on expanding a new global franchising model.

Splits such as this have been deployed‎ frequently in the commercial real estate sector in a bid to unlock value between companies' property assets and their operating businesses.

The company has quietly begun‎ piloting franchise concepts in markets such as France, Italy and Spain, and Mr Dixon is understood to believe that separating the two parts of IWG will lead to it being valued instantly at around £3bn because of its rapid growth prospects.

In France, IWG has hired a former franchising director at KFC and Pizza Hut, the fast-food chains, to lead its rollout there.

Sources said the new model was attractive to IWG because franchising would be less capital-intensive, while the separation of its property business would effectively engineer a huge sale-and-leaseback programme that could improve returns to investors.

In recent weeks, Mr Dixon has been adding to his 25% stake in the company.

IWG's shares have endured a difficult run on the London market, ‎although they are up almost 10% during the last 12 months.

At Friday's close of 239.2p, the company had a market value of £2.15bn.

People close to IWG insisted its board had yet to give a formal green light to a split and long-term sale of its property arm.

One insider said a decision may not be imminent, but confirmed that the plan was one of the strategic options being considered to improve IWG's financial performance.

The company's owned real estate portfolio is estimated to be worth‎ approximately £200m, and could be an attractive investment for a life insurance company or another long-term investor.

It is unclear whether the property arm would be demerged into a separately listed company.

Mr Dixon could then seek to sell a stake in the remaining business to an external backer‎ while continuing to run it, according to a source.

IWG's network of 3,000 offices around the world - a scale which makes it the leading global flexible workspace provider - operate under‎ a range of brands, the best-known of which is Regus.

Earlier this week, the Financial Times reported that Spaces, which is ‎viewed as a direct competitor to WeWork, had drawn bid interest from Terra Firma Capital Partners, the buyout firm headed by Guy Hands.

However, insiders said this weekend that the break-up plan was a likelier prospect for IWG's board to pursue than a sale of Spaces, of which it is on track to take full ownership by the end of the year.

IWG will announce a third-quarter trading update to the City next Tuesday, when it may come under pressure to outline further details of options being considered by its board.

The company initially attracted takeover interest from Brookfield Asset Management (IOB: 0KEH.IL - news) and Onex late last year, but after those talks failed the company then drew further approaches from prospective buyers including Terra Firma, Starwood and TDR Capital.

That set of discussions was eventually abandoned in August.

Mr Dixon is said to be baffled by the stock market's valuation of his company at a time when Softbank (Swiss: SOFB.SW - news) , the Japanese technology investor, is pouring money into WeWork at a $20bn valuation.

WeWork is now the largest office tenant in London but has a global portfolio that is far smaller than IWG's.

The potential shake-up at IWG comes amid growing demand for flexible workspace amid a fast-changing working environment in many sectors of the economy.

Last month, London Executive Offices was sold in a £475m deal to an Asian investment group, with the price well short of its previous owner's expectations.

Mr Dixon has blamed a "Brexit effect" for two profit warnings issued by IWG in the last year.

An IWG spokesman declined to comment.