Whoa. A few people might have thought something was afoot in June when it emerged that John Whittaker’s Peel Holdings had built up a 4.6% stake in Hammerson, but nobody gave it too much thought.
Why would they when Whittaker has taken stakes in a number of companies over recent years?
Now it turns out that Jefferies analyst – and long-term Hammerson antagonist – Mike Prew was spot on when he suggested Whittaker was poised to act as “marriage broker” between Hammerson and Intu, which he owns a 27.2% stake in – not that Prew used the word marriage this time around. While Intu chairman John Strachan hailed the £3.4bn proposed takeover as “the most significant transaction in British real estate in a generation”, Prew described it witheringly as “a coalition of weak business models” and rated both stocks ‘underperform’.
So is the creation of a mega-mall REIT that will leapfrog Landsec to become the UK’s biggest REIT in terms of asset value a good move or not?
It is easy to criticise the deal. For one, Intu will increase Hammerson’s exposure to the UK undoing much of its recent hard work to diversify into faster-growing European markets such as Ireland. The outlook for bricks-and-mortar retail also looks bleaker than ever as this week’s Toys R Us CVA and the recent collapse of Multiyork and Feather & Black testify.
Such is the pessimism among investors now that a group in the US has even developed an exchange traded fund with the apt ticker symbol EMTY specifically to take advantage of the decline of physical retail.
However, just because retail property is braced for tough times generally, that doesn’t mean everyone will suffer. As Hammerson chief executive David Atkins put it: “We are not interested in averages. We don’t own averages. We own the best.”
Hammerson also appears to have snapped Intu up at a bargain price. While the price was at a 27% premium to Intu’s share price the day before the deal was announced and there is the discount to NAV that Hammerson trades at to consider, the price still represents a whopping 34% discount to Intu’s NAV. When you consider that NewRiver REIT is trading at a significant premium to NAV, Intu’s portfolio looks good value. Hammerson and Intu also stand to benefit from improved bargaining power with retailers and £25m a year in cost synergies.
The question is: will the deal spark more M&A activity? The conditions certainly seem conducive. While companies offering high dividend yields and secure income are riding high, others have been trading at persistent discounts to NAV since the EU referendum.
You’d wager that opportunistic investors would be looking to sniff out a bargain.
Who would they target? One potential candidate is surely Helical, which is currently trading at a discount to NAV of about 35%. There are parallels to be drawn with Intu.
Just as Hammerson had to win over Whittaker to secure the shareholder support it needed to buy Intu, any buyer of Helical is unlikely to get very far without making a trip down to the south coast to see Mike Slade on his racing yacht Leopard. Helical has a market cap of about £360m and Slade remains the biggest shareholder with a stake worth more than £38m.
Things could be about to get interesting.