Shopping mall landlord Hammerson’s (HMSO) protracted £3.4bn merger with Intu Properties (INTU) could be under threat as French real estate investor Klepierre makes a £5bn bid for the former business.

The 615p per share deal has been swiftly rebuffed by Hammerson’s board but it is notable that the market has been far from convinced by tie-up with Intu, marking the shares down 20% year-to-date before today’s news.

This share price weakness suggests investors are sceptical that the combination, first announced in December 2017, is a credible response to the structural changes in retail linked to online shopping.

Credit Suisse recently downgraded its stock rating on Hammerson, which owns Birmingham's Bullring shopping centre, to ‘neutral’ from ‘outperform’ and Intu from ‘neutral’ to ‘underperform’ as it noted both companies’ portfolio values were likely to have been overstated, by as much as 13% in Intu’s case.

The recent share price weakness explains why Hammerson felt able to describe the Klepierre offer as ‘opportunistic’ despite it representing a 40.7% premium to the previous closing share price. Nine months ago, Hammerson was trading above 600p.

Jefferies analyst Mike Prew says: ‘Earlier we commented that Intu’s problems were so acute then “If rolled up into Hammerson, we believe the problem would just get diluted, not resolved. With little added M&A value for the high execution risk, we imagine the advisors are looking at their abort clauses”.

‘This may prove prescient. It is easy to see why the market isn’t supporting the Hammerson merger with Intu.’

Klepierre’s offer for Hammerson is split 50:50 into cash and shares.

‘'The proposal from Klepierre is wholly inadequate and entirely opportunistic,’ says Hammerson’s chairman David Tyler.

‘It is a calculated attempt to exploit the disconnect between our recent share price performance and the inherent value of our unique and irreplaceable portfolio which is delivering record results.

‘Klepierre is asking our shareholders to accept a price for their Hammerson shares which is not only at a significant discount to their book value but includes a large element of paper in a company which in our view has a lower quality portfolio and lower growth prospects.

‘The Hammerson board sees absolutely no merit in Klepierre's Proposal and has unanimously rejected it.’

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Issue Date: 19 Mar 2018