Britain's Shopping Mecca Is Saved for the Nation

Hammerson Could Have Been Hoisted With Its Own Petard

Chris Hughes

16 Apr 2018, 10:35 PM IST

(Bloomberg Gadfly) -- A foreign assault on the U.K.’s critical (shopping) infrastructure has been thwarted. French property developer Klepierre SA has pulled its plan to buy London-based peer Hammerson Plc. It seems to have had no appetite for a hostile battle, and insufficient shareholder support for paying the sort of price required for the target board’s approval.

A bid over the heads of Hammerson management would have had a fighting chance of success. Hammerson rejected a Klepierre takeover proposal worth 635 pence a share, or 5 billion pounds ($7.1 billion), on Wednesday. The mooted price was a near-50 percent premium to Hammerson's market value before Klepierre popped up, and the target's shares were trading well below that level. A firm offer would have attracted merger arb funds to Hammerson's register, giving Klepierre sight of majority support.

But the U.K. commercial property market is very difficult right now, retail especially. Britain is not Klepierre's expertise. A hostile victory might have been Pyrrhic if it led to a brain drain from the Hammerson HQ.

The snag was getting Hammerson chairman David Tyler to back a bid, after his recent comments on price. Tyler argues that Hammerson's shares suffer a "disconnect" from the reality shown by its net asset value, the expert portfolio valuation that last came in at a thumping 790 pence a share.

That argument cut both ways. Klepierre's shares trade at a discount to NAV too. Its withdrawn proposal -- 2.5 billion pounds in cash plus a roughly 22 percent stake in the combined company -- was worth much more when you value the stock component using the duo's punchy NAVs instead of Klepierre's weak share price. That's how Bloomberg Intelligence crunches things and the overall number came out at 714 pence a share.

True, that's still a 10 percent discount to Hammerson's NAV. But Klepierre wouldn't have had to close the gap completely. Consider Hammerson's recent all-share offer for rival Intu Properties Plc. That was a 34 percent discount to the target's NAV when based on Hammerson's lowly share price. If you reckon Hammerson shares are worth their NAV, the discount was just 5 percent.

The dynamics mean Klepierre could have sweetened its proposal and put real pressure on Tyler to talk. Suppose it had dangled 337.5 pence in cash per Hammerson share plus a 23.5 percent stake in the combination. That stake would also have been worth 337.5 pence per share based on Klepierre's closing share price Thursday. The total offer would ostensibly have been worth 675 pence.

Value the equity part using the NAV of the combination and its value shoots up to 412 pence a share, making the overall offer worth nearly 750 pence a share, the same 5 percent discount as seen in the Intu deal.

For Klepierre shareholders, leverage would have been uncomfortable, although probably only temporarily, and NAV per share would be higher than it is today.

Still, this would have been a bigger sweetener than the one Klepierre provided this week. Deals don’t normally progress in ever larger bumps. Klepierre credibility would have been weakened. The price of an approved deal was high.

A hostile bid may well have succeeded. Hammerson has had an extremely close shave. Its Bicester Village retail mecca has been saved for the nation -- but only for now.

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 author of this story: Chris Hughes in London at chughes89@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.