Brookfield Venture Ends Pursuit of Intu as Brexit Fears Rise

(Bloomberg) -- Intu Properties Plc has been left at the altar for the second time this year as concerns about Brexit add to the challenges faced by U.K. shopping-mall owners.

A Brookfield Property Group venture abandoned its pursuit of the company on Thursday, a day after the Bank of England said the prices of malls, offices and hotels could fall by almost 50 percent if Britain leaves the European Union without a deal. In response, Intu said it would slash its dividend and use the savings to invest in its portfolio and cut its debt.

Intu dropped as much as 41 percent in London, the most since the shares were first traded in 1992. That slashed the company’s market value to about 1.6 billion pounds ($2.1 billion).

The U.K. company has been hit by a succession of challenges since the Brookfield venture announced it was working on a potential offer last month, including slumping values of its portfolios and tenants such as House of Fraser threatening to sever ties with the landlord. Rival Hammerson Plc abandoned an attempt to buy the company earlier this year.

“Given the uncertainty around current macroeconomic conditions and the potential near-term volatility across markets, the consortium is not able to proceed with an offer within a timeframe which is manageable within the confines of” takeover rules, the Brookfield group said in a statement. The venture also includes Peel Group and Olayan Group, which together own almost 30 percent of Intu’s shares.

Retail Woes

U.K. mall owners have been rocked by the growth of e-commerce and the risk that a no-deal Brexit could wreak havoc on the country’s retail market. Commercial property prices could fall by almost half if Prime Minister Theresa May fails to get parliament to back her Brexit deal and the country crashes out of the EU without a transition agreement, the Bank of England said.

Intu, which owns 17 U.K. malls and three in Spain valued at about 9.6 billion pounds, will now refocus on the search for a chief executive officer to replace David Fischel, who announced plans to leave the company in July. That followed the collapse of the attempted takeover by Hammerson.

“Intu’s focus is on delivering strong total shareholder return over the medium term and believes that maintaining cash in the business by reducing the dividend to fund the investment program will be highly beneficial to the total returns Intu can achieve,” Intu said.

The collapse of the deal will likely put further pressure on U.K. mall values as many landlords looked to the takeover as evidence of the enduring demand for physical stores. Intu has written down the value of its assets by about 9 percent this year.

“A no-deal is even more concerning for valuations; at that point, it’s anyone’s guess quite where the bottom is,” Green Street Advisors analyst Hemant Kotak said in an email. Hammerson fell as much as 7.7 percent to the lowest in six-and-a-half years, while Land Securities Group Plc and British Land Co. also declined.

Billionaire Peel Group Chairman John Whittaker, Intu’s largest shareholder, said he remains committed to the company.

Financing

Intu’s 375 million pounds of unsecured convertible bonds due November 2022 dropped as much as 14 pence on the pound to 82 pence, the lowest level since it was issued in 2016, according to data compiled by Bloomberg.

A floor in Intu’s share price will probably be provided by an earnings multiple -- instead of the conventional net asset value -- because the company’s malls can’t be sold in the current market, Bloomberg Intelligence senior analyst Sue Munden wrote in a note Thursday. She attributed the collapse of the talks to a failure by the venture to finance a deal.

“Faced with severe retailer stress in the U.K. which threatens more than 4 percent of income, Intu’s hands are tied for options to lift mall income,” Munden wrote. “At best it can limp through this crisis.”

The failure of the deal is purely a reflection of short-term volatility, with other issues including the dispute with Mike Ashley of House of Fraser immaterial, Intu CEO David Fischel said in an interview. Brookfield had already made progress with financing and Ashley’s stores account for about 1 percent of Intu’s rental income, he said.

--With assistance from Luca Casiraghi.

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Andrew Blackman, Neil Callanan

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