A $7 Billion Bet Says Experts Are Wrong About Shopping Malls
(Bloomberg Gadfly) -- Who believes U.K. commercial property is worth what the experts say? Certainly not the shareholders. Their doubt has tempted Paris-based landlord Klepierre SA to have a go at buying Hammerson Plc, owner of some of Britain's top malls. Hammerson's defenses look weak.
In December, the British company agreed to buy fellow London-listed property group Intu Properties Plc. Its shares subsequently fell by about 20 percent before Klepierre -- chaired by property magnate David Simon -- made a bid approach on March 8. Hammerson said no, arguing that the overture was well below its net asset value as calculated by industry experts.
The 4.9 billion pound ($6.9 billion) proposal is pitched 41 percent above Hammerson's market capitalization last week, the kind of premium that would usually prompt talks. Against Hammerson's three-month average value, it's a 27 percent top-up -- still credible as an opening shot. The shares were roughly at the bid level last June, but haven't closed higher since 2015.
Klepierre is suggesting paying half in cash with the rest in shares in the enlarged company, implying a roughly 20 percent stake for the target's investors.
Hammerson's rejection centers on the offer being a 21 percent discount to the group's last reported NAV, which it argues may understate its true worth by ignoring development prospects. That's before counting the benefits of the Intu transaction.
Investors in U.K. companies haven't minded selling up for shares in highly leveraged French companies lately -- think of Elis SA's takeover of dry cleaner Berendsen last year. A firm offer from Klepierre would give Hammerson shareholders the opportunity to crystallize half their investment at a discount to NAV and swap the rest for shares in a European commercial property company with a different asset mix.
Alternatively, they get to own 100 percent of Hammerson-Intu, which would in the short term mean more exposure to the U.K.
But with all the uncertainty about Brexit and the British retail market, those discounts to backward-looking NAVs are entirely understandable. Hammerson's offer for Intu was at a 34 percent discount to NAV on a comparable basis. The group can argue all it likes, but a formal offer from Klepierre would mean the chance to realize value well above the recent share price.
Hammerson needs to show how it would push the shares higher over the next year or so. A sale of some lower quality holdings at close to their NAV would help. So long as Klepierre's share price holds up, underpinning any offer, the onus is on Hammerson to prove it is worth what the experts say.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.
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