Building a Wall Around Britain's Shopping Mecca

(Bloomberg Gadfly) -- Days after the bitter controversy surrounding the takeover of British engineering firm GKN Plc, the stage is being set for another hostile battle.

The target this time: property developer Hammerson Plc. It may not generate the same emotional reaction as a company that made Spitfires, but its putative buyer, Klepierre SA, is French -- and to shopaholics, Hammerson's Bicester Village development is a vital piece of national infrastructure.

On Thursday, Hammerson started building its defenses. Klepierre must decide by April 16 whether or not to make a firm offer, after a tentative approach valued at about 4.9 billion pounds ($6.9 billion) was swiftly rejected last month.

Building a Wall Around Britain's Shopping Mecca

Amid the uncertainty, Hammerson is seeking to head off accusations it's spurning a deal that could be worth a lot more than its 3.5 billion-pound market value before Klepierre surfaced.

It has parked preparations for a shareholder vote on its own takeover of Intu Properties Plc, a smaller British developer. That's an easy sop since this unpopular deal is subject to a lengthy antitrust review anyway.

Hammerson also published an updated figure for the net value of its assets -- pegging it at 6.3 billion pounds, up 2 percent on its previous estimate -- and said the impact of the recent collapses of high-profile retailers had been limited.

It will need to do better than this if a firm offer lands.

Investors remain understandably wary of NAV metrics, even though the measure is based on previous asset sales and current rental levels. Brexit has created considerable uncertainty about the prospects for the British economy. That makes bets on the company's medium-term share price tricky. Investors will probably focus on the highest price they can get for their shares today, and a Klepierre bid would offer the chance to realize an immediate gain.

Building a Wall Around Britain's Shopping Mecca

True, Klepierre's shares have fallen since its cash-and-stock proposal became public. But Hammerson shouldn't take much comfort in that. Klepierre has said little about the rationale and synergies of a deal. If it can fill that vacuum, its bid currency could recover.

Given the sides are still far apart on value, one tactic for the suitor would be to formalize its offer at the price dangled -- just as Melrose Industries Plc did early on in the battle for GKN. To heap more pressure on, Klepierre could add a small sweetener as a gesture to the latest numbers.

That wouldn't be enough to persuade Hammerson to advise shareholders to back a takeover by Klepierre rather than a takeover of Intu. But the developer would then need to prove to investors why they should believe its assets are worth what the company thinks they are. To do that, further disposals of properties at their NAV or above would be required.

GKN has showed how it's possible to marshal a decent defense in short order. Hammerson needs to get building one fast.

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.

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