Shoppers at the Bullring shopping centre in Birmingham. For Hammerson, the bid is as much about disposal as acquisition © PA
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Fans of enormous shopping centres will find themselves stepping on property giant Hammerson’s turf more often. A £3.4bn deal to buy smaller rival Intu will leave it owning 17 of the UK’s 25 biggest malls.
Fewer people like shopping to muzak these days, preferring to sit inside and click on Amazon Prime. That helps to explain why Intu shares trade at only half the (rent-derived) value of its assets. As a precis of a struggling UK retail sector, this deal is as good as any.
Hammerson’s approach reeks of an attempt to snatch a bargain, offering its own stock in exchange for that of Intu, valuing the company at 254p a share. It may be 28 per cent above Tuesday’s closing share price but it is a third less Intu’s net asset value. Wind the clock back and the pain for long-term Intu investors is clear. In 2010, it rejected a cash bid of 425p per share, claiming it was worth far more.
No one would make that argument today. Intu shareholders should be pleased, particularly deputy chairman John Whittaker, the guarded billionaire who has also been building a stake in Hammerson. No more worrying about how a company with debt equal to 45 per cent of assets is going to pay for its pipeline of Spanish shopping centres. Intu will lose both its silly name and most of its management team in the deal. Neither will be much missed.
For Hammerson, the bid is as much about disposal as acquisition. Sales of about £2bn are planned. Expect Intu’s smaller centres, in places such as Milton Keynes and Nottingham, to be up for the chop, alongside some of Hammerson’s scruffier retail parks. All are likely to be priced at a discount to net asset value.
This all sounds like a lot of effort for Hammerson — which will also have to refinance Intu’s debt and invest to make its malls more appealing — without any promise of blockbuster returns. The value of cost savings does not cover the premium paid. Hammerson’s loan to value ratio will rise above the 40 per cent target, and its exposure to UK retail will increase. The strategy for years has been to buy in Europe, reducing exposure to uninterested UK shoppers. Diving back in looks unwise, even at this price.
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