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Shopping centre owner Hammerson to buy rival Intu Properties in all-share deal

The combination will create a £21bn pan-European portfolio of retail and leisure assets
Hammerson and Intu own a number of shopping centres across the UK

Hammerson PLC (LON:HMSO) has agreed to buy rival real estate investment trust Intu Properties PLC (LON:INTU) in an all-share deal worth £3.4bn.

“The acquisition creates a leading pan-European platform of desirable retail and leisure destinations which are better positioned to serve the needs of our retailers, excite our customers and support our partners and communities,” chief executive David Atkins said in a statement on Wednesday.

The combination will create a £21bn pan-European portfolio of retail and leisure assets, which Hammerson believes will unlock growth and opportunities for shareholders.

The acquisition will result in Hammerson shareholders owning 55% of the enlarged business.

Hammerson to sell assets

Hammerson expects to dispose at least £2bn of the combined group’s poor performing assets to strengthen the balance sheet and provide liquidity to invest in higher return opportunities.

As part of its disposal plan, the group announced on Wednesday that it was selling its stake in Saint Sébastien shopping centre in Nancy, France to AEW Ciloger for a net vendor price of €162mln, "moderately below" book value at 30 June.

READ: Hammerson reports rise in first half profits but is cautious on Brexit uncertainty

Hammerson owns a number of shopping centres in the UK, including London's Brent Cross and Cabot Circus in Bristol, along with properties in Ireland and France. Intu owns shopping centres across the UK including Manchester’s Trafford Centre.

The deal with Intu offers “attractive” prospects with exposure to two of Europe's fastest growing economies of Ireland and Spain and additional sources of capital to help expand its portfolio of premium outlets, Hammerson said.

Positive for earnings

Hammerson expects a one-off cash cost of £40mln in aggregate for the integration of Intu but anticipates the enlarged group will deliver pre-tax cost synergies of about £25mln per year by the end of the second year following completion.

The group also expects the acquisition to be accretive to earnings in the first full financial year following completion.

Atkins will be chief executive of the merged company and Hammerson’s chief financial officer Timon Drakesmith will remain in his position. Hammerson chairman David Tyler will keep his role at the combined company while Intu’s deputy chairman John Whittaker will retain his job.

Intu chairman John Strachan, who will become senior independent director of the enlarged group, said: "A combination of both Intu and Hammerson will create a more resilient, diversified and stronger group that we believe will benefit all our stakeholders. Intu offers high-quality retail and leisure destinations in the UK and Spain, which when merged with Hammerson's own top-quality assets in the UK, in France and in Ireland, present a highly attractive proposition for retailers and shoppers in Europe's leading cities.”

Deal represents premium to Intu shares

Liberum left its rating on Hammerson and Intu at 'hold', saying: "Hammerson's recommended all share offer values Intu at 253.9p, which represents a 28% premium to yesterday's close, but a 34% discount to the last reported EPRA NAV (European Public Real Estate index net asset value)."

The broker expects the deal will add about 5% to combined profits through initial cost savings, though it faces the risk of competition and a third party approach for Intu.

"We believe scale increasingly matters in retail REIT ownership and in this respect the combination makes sense and we would back Hammerson's management to deliver its targeted savings."

Shares in Intu surged 20.10% to 239p while shares in Hammerson fell 1.31% to 527.50p in morning trading. 

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