Hammerson's Intu tilt may bring PE bidders out of the woodwork - Olivetree

Hammerson's acquisition of shopping mall rival Intu Properties is a mix of "opportunism" and "defensiveness", said analysts at specialist M&A broker Olivetree Financial, who do not expect the deal to be blocked on competition grounds.

FTSE 100-listed Hammerson has agreed a £3.4bn all-share deal to buy rival Intu Properties, which was relegated from the bluechip index in the summer and remains one of the most shorted stocks on the market.

For each share they own, Intu shareholders will receive 0.475 new Hammerson shares, meaning Intu shareholders will own roughly 45% of an enlarged group with a £21bn portfolio across the UK, France, Ireland and Spain.

The deal, "arguably a merger of equals", is not expected to close until the fourth quarter of 2018, noted Olivetree, due to the need to gain approval from the Competition & Markets Committee for what is a merger of two of the largest shopping centre operators in the UK.

"The CMA will want to look to see whether this raises an issue for retailers," Olivetree said. "Critical to the analysis will be whether the CMA views the provision of shopping centres as a national or regional market."

Implications from Hammerson's 2016 acquisition of the Grand Central centre in Birmingham is that the analysis will be done on a regional basis, with the CMA finding "sufficient competitive constraint remaining post-merger from a range of different retail space options within Birmingham city centre, in particular from the ‘high street’ offering"...sufficient to ensure that the merger does not give rise to a realistic prospect of a substantial lessening of competition”.

A breakdown of each company’s respective portfolios shows Hammerson's diversification, with 47% of the portfolio in UK shopping and retail parks versus Intu as essentially a pure play UK operator.

If disposals are required by the CMA they may be in Bristol, Birmingham and Glasgow, but it would be "relatively straightforward" to find buyers.

All in all Olivetree said: "Whilst the CMA review will require some time and detailed analysis, we do not believe it is likely to provide a major hurdle to the deal. Indeed, we see it entirely feasible for a phase I clearance to be obtained."

Pondering on whether there is the chance of a counter-bid, analysts said that with no control premium being paid, and a vote required at both the acquirer and the target, the possibility of a counterbid for either Hammerson or Intu must be considered.

However, seeing as Hammerson has received support from shareholders holding 51% of Intu's stock, including 21% shareholder Peel Holdings, John Whittaker "would have considered all options" and it "seems unlikely to us that Intu is for the taking here".

Hammerson is the more likely target. having been associated with take-out speculation in the past, with private equity group KKR among potential interested parties, Land Securities and Westfield once cited as being interested, and Olivetree suggesting Klepierre and potentially GGP as other possibilities.

"Unwelcome interventions in property deals are unusual, but with such a long time line, one needs to be very comfortable that no counter will present itself for Hammerson before one sets up the spread."