Shares in the major UK property companies rose this morning after a report that a group of Indian and Gulf investors were mulling a bid for British Land.
The Daily Telegraph newspaper said a consortium, comprising Indian steel tycoon Lakshmi Mittal and the Abu Dhabi royal family, had approached Credit Suisse for advice on a possible acquisition of Britain's second-largest real estate company.
British Land’s shares jumped 5% to 518p in early trading, giving it a market value of £4.4bn. Land Securities was up 5%, Liberty International up 5.5%, Hammerson up 4.7%, Segro up 2.3% and Derwent London up 5%.
The Daily Telegraph said the investors had originally looked at buying British Land's flagship Broadgate office complex in the City of London financial district but had also spoken to bankers about a possible takeover.
Rumours of sovereign wealth fund interest in British Land ignited early yesterday, after more than 3m shares were traded by 8.30 in the morning.
But analysts are sceptical about the likelihood of a takeover bid from the rumoured suitors.
‘We are not going to say that takeovers are 100% ruled out, but this looks odd to us,’ said JP Morgan’s Harm Meijer. ‘The FT mentions a potential takeover bid of 600p a share for British Land, which would imply an implied net yield of 5.5%, dividend yield of 4.3% and premium to latest NAV of 51%. Not exactly a knockdown price. But also just think about it: do these companies really want to be taken over after this downturn, recent equity raisings and long history?
‘In addition, when most UK stocks were only a few months ago trading at implied net yields of more than 7.5% nobody was interested, but now apparently the price does not matter anymore, while remember the market is still distressed.
‘We do not want to sound bearish, because we believe there is some truth in the strength of these share prices, but now we have arrived in a phase that we find hard to justify. We still remember the press reports of two years ago about a potential bid for Hammerson when it was trading at around 1,700p levels (current share price 397.3p). We all know what happened. Once again the Old City and Wall Street saying comes to mind: “No price is too high for a bull or too low for a bear.”’
Noble Group’s Michael Burt said: ‘If you want exposure to prime UK property assets at depressed prices, you buy a single asset, not a corporate vehicle.
‘It sounds bizarre when you're talking about Abu Dhabi or Mittal but financing is the issue. Buying a stake is very different from spending £11bn on a firm like this, because that is what it could cost. Look at the past form. Middle Eastern buyers like buying stakes in individual assets. It's a big leap to go from that to buying a whole company.’
