Hammerson swoops for Intu to create shopping centre giant
Shopping centre owner Hammerson has agreed to buy FTSE 350 rival Intu Properties in a £3.4bn all-share deal that will create a £21bn portfolio across Europe.
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For each share owned, Intu shareholders will receive 0.475 new Hammerson shares, which based on the Hammerson's overnight closing price of 534.5p values Intu shares at 253.9p apiece. This will mean Intu shareholders will own roughly 45% of the enlarged group, though the deal is not expected to close until the fourth quarter of 2018.
Despite the structural changes of the retail market as the world moves increasingly online, Intu's net asset value stood at £5bn or 403p per share at the end of June with a portfolio that includes a growing presence in Spain, and its share price only fell below 250p for the first time in August. Both companies shares trade at major discounts to historic NAV, with Intu at over 37% and Hammerson at around 30%
As such the offer price is a premium of 27.6p to their 198.09p closing price overnight, a 9.4p premium to their average price over the past six months but some way short of the 298p high from February and 350p from just over a year ago.
Seeing Hammerson has received support from shareholders holding 51% of Intu's stock, plans to strengthen the balance sheet and provide funds for reinvestment with a £2bn property disposal programme once the deal is concluded and expect to make efficiency savings of at least £25m per year by the end of the second year at a cost of around £40m.
Hammerson's David Atkins will remain chief executive of the enlarged group, similarly his trusted finance chief Timon Drakesmith and chairman David Tyler, with Intu's deputy chairman John Whittaker becoming deputy chairman of the enlarged group and Intu chairman John Strachan joining the board as senior independent director.
"This transaction will deliver real value for shareholders," said Tyler. "The financial strength of the enlarged group and its strong leadership team will make it well-placed to take advantage of higher growth opportunities on a pan-European scale."
Atkins added: "The acquisition creates a leading pan-European platform of desirable retail and leisure destinations which are better positioned to serve the needs of our retailers, excite our customers and support our partners and communities. I hold Intu's high-quality centres in high regard and I look forward to working with a strengthened team to enhance the performance of our entire portfolio."
Intu's Strachan emphasised that the combination with Hammerson larger portfolio across the UK, France and Ireland, will create a "more resilient, diversified and stronger group that we believe will benefit all our stakeholders".
Also on Wednesday, Hammerson announced the sale of its 75%-owned Saint Sébastien shopping centre in Nancy, France for a net vendor price of €162m (£143m), moderately below 30 June 2017 book value.
Hammerson, which acquired its stake in Saint Sébastien in 2014 for £109m, said the sale was expected before year-end.
REACTION AND ANALYSIS
Shares in Hammerson were down 1.45% to 526.75p on Wednesday morning, while Intu's were up 20% to 238.54p by 1100 GMT. The news saw property peer British Land rise, although reactions for both Segro and Land Securities were more muted.
Analyst Mike van Dulken at Accendo Markets said Hammerson's fall was understandable, given the acquisition risk involved, though he noted that while the deal is being pad for with new shares "it doesn’t look dilutive".
Intu's shares had not jumped all the way to the 254p offer price "due to the same acquisition risk", noting that the deal may collapse or be blocked, plus potential regulatory hurdles.
Timing guidance is "long and perhaps overly conservative", said analysts at Olivetree, with documents not due until April 2018 to allow for both companies to release their results at the end of February. "There clearly seems to be an element of defensiveness in this transaction."
Olivetree added: "There has been no shortage of bearish outlook for the retail property sector as the UK consumer gets embattled from the prospect of rate rises and fallout from Brexit. Intu came into this transaction with a short interest of about 20%, and with the Intu convertible bonds trading on such a low delta, this short interest is largely attributable to directional bets. This transaction offers the chance to rationalise the combined portfolio and also extract much needed synergies."
Hammerson's move was described as "dramatic" by AJ Bell investment director Russ Mould, "given how terribly Intu’s shares have down this year, amid fears over not just what Brexit may do to consumer confidence but also the fate of bricks-and-mortar retailers at the hands of Amazon and other online rivals".
With Intu’s shares trading at a 37% discount to net asset value suggests Hammerson’s management "think they are picking up a bargain", he added. in the form of the owner of the Trafford Centre in Manchester, Lakeside and Gateshead’s Metrocentre.
He added: “For all of the gloom surrounding the FTSE 100’s real estate investment trusts (REITs), they have yet to show any signs of Brexit-related stress. In fact, their net asset values have continued to rise, to confound the sceptics’ worst fears.
“The big four REITs still trade at meaty discounts to net asset value and it will be interesting to see if anyone else shares the faith shown today by Shaftesbury and Hammerson that British UK property is still a good long-term investment, as the lowly valuations on offer are another indication of how you can have cheap stocks and good news, just not both at the same time.”