Shopping centre owner Intu Properties (INTU) gains 17.1% to 233p as rival Hammerson (HMSO) launches an all-share merger offer worth £3.4bn.
Hammerson has swooped after prolonged weakness in Intu’s share price which had fallen by a quarter over the 12 months to 5 December.
Although the price represents a 28% premium to last night’s market close, it is at a 34% discount to the last reported net asset value. The consolidation effort by Hammerson reflects the structural pressures on retail property as online shopping has boomed.
The enlarged business will operate under the name Hammerson, with Hammerson shareholders owning 55% of the business and Intu shareholders 45%.
But investors in the acquirer do not appear to be convinced by the merits of the deal, marking the shares 4% lower to 513p.
WHAT IS THE RATIONALE FOR THE DEAL?
The rationale is that the merger will create a £21bn pan-European portfolio of retail and leisure assets with enhanced growth prospects. Both parties point to the combined entity’s exposure to two of Europe’s fastest growing economies in Ireland and Spain.
The plan is to sell at least £2bn worth of assets to bolster the balance sheet and provide cash to invest in higher return opportunities. There is an expectation that combined profit can be boosted by at least 5% through efficiencies and synergies.
Liberum analyst David Brockton says: ‘We believe scale increasingly matters in retail REIT (real estate investment trust) ownership and in this respect the combination of Hammerson and Intu makes sense.
‘We also believe Hammerson has a good track record in delivering operational and financial savings to increase earnings efficiency and we see lots of potential in Intu. Given the long-term and significant recent underperformance in Intu's share price, something had to eventually give.’
WILL IT HAPPEN?
Hammerson has effectively secured approval from half of Intu’s shareholder base, though Brockton notes it is ‘entirely possible that an international third party could show interest’.
He notes the deal will require approval from the Competition and Markets Authority with the combination set to own 13 of the top 20 ranked shopping centres in the UK.
