Blackstone Agrees to Buy U.K.’s St. Modwen for $1.7 Billion

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Blackstone Group Inc. has confirmed it will offer 1.2 billion pounds ($1.7 billion) to buy St. Modwen Properties Plc despite opposition from a shareholder insisting the price is too low.

A deal would swell the private equity giant’s vast U.K.’s warehouse portfolio, adding land for future development. Blackstone is offering 542p per share in cash, according to a statement Thursday.

The money manager announced its intention to bid earlier this month and was met with resistance from J O Hambro Capital Management Ltd., which owns just over 9% of St. Modwen. Blackstone’s offer has secured the support of St. Modwen’s board and the family of its founder Stanley Clarke, giving it the backing of holders with a 6.59% stake. The offer will be put to a shareholder vote next month.

Competition for warehouses across Europe has intensified as investors including Goldman Sachs Group Inc., Cerberus Capital Management LP and GIC Pte bet on rising rents, a trend accelerated by the pandemic as more people shop online. With U.K. warehouse lease agreements reaching a record in the first quarter, according to CBRE Group Inc., the asset class is outperforming any other type of commercial property.

Blackstone has been racing to scale up its Mileway unit that focuses on urban warehouse properties close to population centers that are in demand from online retailers seeking to cut delivery times. Intense competition for these properties has encouraged Blackstone to execute more complex deals in its bid to secure assets, including the acquisition of Hansteen Holdings and portfolios from Sweden’s Castellum AB.

St. Modwen has three main business units, focusing on housebuilding, warehouses and urban regeneration. After shifting its focus toward logistics in the past two years, that unit now accounts for about 49% of the company’s 1.37 billion pound portfolio, according to a February earnings statement. The rest is split almost equally between its house building arm and the strategic land and regeneration unit which the company has been shrinking.

The company’s portfolio includes plots with the potential for 19 million square feet of new warehouses, the equivalent of almost 250 soccer fields. Demand for new housing across the U.K. has put additional pressure on the supply of land available for warehouse development, particularly those close to population centers.

The offer represents a premium of 21.1% over St Modwen’s price the day before the Blackstone offer was announced and a 24% premium to the value of St Modwen’s assets.

“Although a 24% premium to the last reported net asset value looks attractive –- particularly against recent sector mergers and acquisitions –- it reflects less than three years of growth on our forecasts and arguably provides access to an irreplaceable pipeline of further growth opportunities,” Peel Hunt analysts including James Carswell wrote in a note to clients earlier this month.

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