Klépierre ends pursuit of Hammerson which remains silent on Intu deal in response

By James Wallace - Friday, April 13, 2018 7:52

Klépierre walked away from submitting a formal offer to buy Hammerson this morning which prompted the British retail REIT to welcome the clarification and re-affirm its confidence in the “intrinsic value of Hammerson and its prospects”.

David Tyler, chairman of Hammerson, said: “The board is confident in the intrinsic value of Hammerson and its prospects. It is entirely focused on delivering value for shareholders in the shorter and longer term.”

The statement did not include any reference to its intended all-share acquisition of Intu Properties. One interpretation of this statement is that the board may be considering its options regarding the proposed all-share offer. The reference to the “intrinsic value of Hammerson and its prospects” implies Hammerson as it is today – without a takeover by Klépierre or of Intu Properties.

Hammerson added that since the approach by Klépierre and the subsequent first quarter trading update, the REIT has “engaged intensively with its shareholders and will continue to do so”.

Under takeover rules, if Hammerson decided to rescind its offer for Intu, a statement would have to be made to the market. Perhaps the board of Hammerson is still in a process of dialogue among itself and with all major shareholders before a final decision is taken.

Intu or not intu, that is the next question

On one hand, there remain convincing reasons why Hammerson could still wish to press ahead with the acquisition, not least given the broad common shareholder base of Hammerson and Intu – estimated at between 45% and 50%.

“Given the significant shareholder overlap between the Hammerson and Intu registers, we now see a very high probability of the Intu acquisition proceeding,” wrote BNP Paribas’s real estate analyst team in a note this morning. “We would expect shareholder documents regarding the Intu transaction to be lodged within the next few days.”

The acquisition would create the UK’s largest REIT, with a £21bn pan-European retail property portfolio second largest in Europe after Unibail.

But there are clear reasons why Hammerson may be contemplating a change of heart regarding the Intu deal. Since the turn of the year, to the day before Klépierre’s initial interest, Hammerson’s share price fell 20% to 437p, with the decline at least partly reflecting the lack of conviction the market had in the marriage with Intu.

Hammerson has also delayed publishing final offer documents for its proposed all-share acquisition of Intu until after the clarification of Klépierre’s intentions. Now that clarification has come, no reference to the final offer documents was made in Hammerson’s announcement today. And of course, there are the headwinds. The UK retail sector continues to come under significant stress due to the rise of e-commerce, with future rental growth prospects diverging.

“On margin, we believe the likelihood [of Hammerson’s takeover of Intu] has slightly reduced,” wrote Barclays in a note to clients this morning. “1) Hammerson shareholders know that the company has become an M&A target and can potentially crystallise more value on a standalone basis, 2) some shareholders were surprised that the Hammerson board rejected the initial offer within 24 hours and wonder therefore whether the board has carefully examined possible alternatives."

The Barclays note added: “However, the overall likelihood of a deal materialising remains hard to forecast given the substantial shareholder overlap between the two entities.”

Why Klépierre walked

Klépierre said the reason it decided to walk away from Hammerson was because the British REIT failed to extend any “meaningful engagement” with respect to its revised indicative offer of 635p. Klépierre decided against attempting a risky hostile takeover possibly given the low success rate. In the UK, successful hostile M&A activity arising from unsolicited bids was just 43% between 2000 and 2018, according to Bloomberg data.

“After careful consideration, Klépierre has concluded that it does not intend to make an offer for Hammerson,” the property investment fund said in a statement this morning.

Hammerson’s statement this morning responded: “The board continues to believe that Klépierre's proposal, which the board carefully considered following a meeting between David Tyler and Jean-Marc Jestin, very significantly undervalued Hammerson.”

The increased offer reflected a 45% premium to Hammerson's undisturbed share price of 437.10p prior to Klépierre’s offer but still 20% below Hammerson's NAV of 790p per share. Hammerson’s share price fell briefly by 15% to 452p in early trading before recovering slightly to 464 as at 12:00 BST. “We believe that Klépierre was acting opportunistically, and its transaction rationale only holds if it acquired Hammerson at a discount,” wrote Kepler Cheuvreux in a note this morning.

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

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