Klépierre retests Hammerson’s resistance ahead of Monday’s final deadline

By James Wallace - Wednesday, April 11, 2018 10:54

Hammerson’s board has unanimously rejected a revised indicative offer by Klépierre of 635p per share for the UK-based retail REIT but its resistance to a potential acquisition appears to have softened ahead of Monday’s ‘put up or shut up’ deadline.

Klépierre’s revised offer, again a mix of 50% cash and 50% shares, was conveyed in a meeting between David Tyler, chairman of Hammerson, and Jean-Marc Jestin, chairman of the executive board of Klépierre, on Monday.  The offer is a 3% improvement on the original offer last month. On the one hand, the second offer reflects a 45% premium to Hammerson’s undisturbed share price, and on the other hand it is a 20% discount to EPRA NAV of 790p, published last Thursday in the rushed first quarter trading update.

The perennial issue of how to value REITs – whether by share price or net asset value – is only part of the complexity in this potential corporate acquisition. Investors need also balance the future prospects of the retail sector in this late-cycle period, whether Klépierre is opportunistically capitalising on the current negative sentiment to UK retail property or not, as well as the potential acquisition of Intu Properties by Hammerson.

There has been a notable softening in resistance to the idea of an acquisition by Klépierre of Hammerson. Three weeks ago, the original offer was lambasted as “wholly inadequate and entirely opportunistic”. This morning, while Hammerson said the revised offer “is not at a price that justifies further engagement with Klépierre”, crucially, the door was left ajar. “The Board remains open to discuss any proposal from Klépierre which properly reflects the value of the company.”

The takeover panel deadline of Monday at 17:00 remains in place for a potential final formal offer, which must be considered a likely possibility at this stage. Theoretically, an extension to Monday’s ‘put up or shut up’ deadline could be granted. Peel Hunt, in a note issued this morning, stated: “We believe 650p or higher would be very tempting, especially against the backdrop of retail headwinds in the UK and softening asset prices. It could be an interesting few days ahead…”

Jefferies, in a note this morning, indicated that Klepierre “may be constrained on a significantly higher bid on the grounds of earnings dilution with the French REIT trading at a forward dividend yield of 5.9% versus [Hammerson’s] implied forward dividend yield of 4.1% on the 635p bid price.

“We know that Klépierre has been meeting with Hammerson shareholders over the past weeks, and therefore we think that this revised proposal would factor in the feedback garnered from those meetings,” co-wrote Peel Hunt analysts Matthew Saperia, James Carswell and Keith Crawford.

“Overall, we believe an offer of 650p or higher would be enough to persuade many shareholders to take the Klépierre offer over the Hammerson/Intu combination. Whilst this may be at a material discount to NAV, most analysts/investors expect NAV growth to be muted over the coming years – particularly given Hammerson’s increased exposure to UK shopping centres, which would follow the acquisition of Intu (approx. doubling to c.60%).

“When returns are low, real estate shares nearly always trade on material discounts to NAV and therefore we see no realistic prospect of Hammerson trading at NAV over the short to medium term.”

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

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