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Bizarre news of the day among the larger cap stocks on Wednesday was undoubtedly the announcement that property behemoth Hammerson (HMSO) was buying shopping centre peer Intu (INTU) with a £3 billion+ all share (naturally) offer which creates a 'top three pan-European REIT' (real estate investment trust) with £21 billion of property baggage on its book. And, yes, you have guessed it, the transaction will be earnings accretive despite synergy levels (£25 million) that are more like a rounding error.
First, I am not surprised that Hammerson have gone all-share. First, its shares have outperformed Intu's even after the bid premium for the latter by a cool 15%+ over the last three years. Second, the estimated debt burden is over £8 billion for the combined entity and even though the deal presentation notes that this reflects 'just' a 41% loan-to-(portfolio)value we all know that property is an unusual, illiquid beast even at the best of times...and it is hardly rampant Premier League days for your average shopping centre.
No wonder £2 billion of disposals were also announced...spend over £3 billion on an acquisition and dump the £2 billion odd of the lowest hanging fruit from your combined portfolios. I guess it could be a super smart portfolio-focusing move creating 'enhanced destinations for consumers' with over 40% of floor space in the top 20 European cities, but call be a bit sceptical despite the 96% shopping centre retail space occupancy and the citing of ok trends on footfall and rental negotiations as per both of the company's recent trading updates.
Of course there is value. Intu's shares are trading at around 60% of NAV and Hammerson's at around 75% of NAV. Of course quality, debt, liquidity and related all matter and property NAVs of this magnitude are clearly not unheard of. I guess that makes the rationale the notion that Hammerson's management will be able to run Intu's assets better. Hammerson personnel will hold the majority of board seats and the CEO and CFO positions 'natch. Still, I am surprised that over 50% of Intu shareholders have apparently already rolled over. Grab that bid whilst you can...before the online shopping demon gets you?
Overall, another day, another big FTSE-350 deal. Despite the decent NAV discount, I think Hammerson is going to have to work hard to look smart when the days of cheap money end. I wonder if it is going to change the name of my local shopping centre too?!
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