Hammerson’s shareholders have a choice to make. Do they put their trust in chief executive David Atkins and push on with the £3.4bn takeover of rival intu, or do they force him to consider the offer from French shopping giant Klépierre? For me it has to be the latter.
A couple of weeks ago, Klépierre executive board chairman Jean-Marc Jestin wrote to Hammerson chairman David Tyler inviting him to engage in talks – an offer many would have thought was worth revealing to Hammerson’s shareholders. Tyler and Atkins felt otherwise, and it was not until the news leaked 11 days after Jestin wrote to Tyler that Hammerson shareholders were made aware of the offer.
Jestin said Klépierre would offer 615p a share, with a mix of shares and cash, valuing Hammerson at £4.88bn. Despite the fact that Hammerson’s share price hasn’t been that high since November 2015, Tyler, Atkins and the rest of the Hammerson board took less than 24 hours to reject the bid, in a letter to Jestin containing a mere six lines.
So hell bent does Atkins appear on sealing the much-criticised deal with intu, I believe Hammerson’s board has lost sight of its primary goal – to create value for its shareholders. Judging by the reaction of the group’s share price to Klépierre’s offer, shareholders appear keen on taking the cash now, not waiting for Atkins’ promises of jam tomorrow following the intu deal.
However, Atkins believes Klépierre’s bid significantly undervalues the group. One person close to Atkins told me Hammerson would not even entertain a takeover bid unless it mirrored Unibail’s takeover of Westfield, in which the other French retail property giant paid a 7% premium on Westfield’s net asset value (NAV). In other words, Atkins is under the illusion that Hammerson is worth 830p a share, or a staggering £6.6bn. Pah!
If Atkins really believes takeover bids should be based entirely on NAV, then why is he offering intu shareholders just £3.4bn, 34% below intu’s NAV?
Time is running out
A deal with Klépierre makes sense. Its portfolio of more than 100 shopping centres is heavily weighted towards continental Europe and Hammerson would give it a strong presence in the UK. For Hammerson shareholders, the deal offers what Atkins promised: a balanced European portfolio.
Atkins, who would be in line for a windfall of at least £9m if a deal with Klépierre were agreed, is playing for time. But time is running out. As Jefferies analyst Mike Prew points out, Klépierre’s opening gambit of 615p a share is a good opening bid, one Atkins and his board should take seriously.
Find out more - Klépierre bid throws Hammerson’s future intu doubt
Since turning Hammerson into a pure retail play, just before retail property had a massive wobble, Atkins has made much of his efforts to ensure his portfolio is more balanced and less reliant on the highly cyclical UK market.
However, the intu deal would leave 70% of the group’s assets in the UK. Plus, apart from the odd gem, intu has a lot of old, shabby shopping centres requiring a great deal of expensive management. Sure, Hammerson would offload many of intu’s less attractive assets, but the market does not lie. Since announcing the deal, and before Klépierre’s offer was revealed, Hammerson’s share price had dived 19% and its membership of the blue-chip FTSE 100 has been revoked. When news of Klépierre’s offer leaked this week, the shares made up that fall and then some.
It’s clear what the market believes Atkins should do – and the intu takeover is not it.