Segro PLC's (LSE:SGRO) rejection of a £12.6 billion takeover approach from US giant Prologis Inc (NYSE:PLD) may be only the opening round in what could become one of the biggest UK property deals in years.
The US logistics giant's all-share proposal valued Segro at 925p a share, a 24.6% premium to the undisturbed share price and broadly in line with the company's last reported net asset value.
That was not enough for Segro's board, which dismissed the approach as "opportunistically timed" to take advantage of the "clear dislocation between Segro's current share price and its highly attractive underlying business and strong prospects" and "falls a long way short" of its assessment of the company's value.
The key question now is whether Prologis comes back with more.
Analyst John Cahill at Stifel believes it can. With a market value of around $139 billion and substantial financial resources, "an improved offer is clearly possible" from Prologis.
And the act of taking its offer public, said AJ Bell's Dan Coatsworth, "suggests the initial all-share bid submitted last week is just its opening salvo and that Segro’s rejection won’t be the final word in the story".
Segro's shares trade at about a 20% discount to net assets, reflecting a wider malaise across the UK REIT sector that has left even its strongest companies looking vulnerable to deep-pocketed overseas bidders.
Other analysts argued that a bid based on current NAV understates Segro's attractions.
Bjorn Zietsman at Panmure Liberum said the important consideration is whether an offer adequately compensates shareholders for the future returns available from Segro's development pipeline, urban logistics portfolio, power infrastructure and emerging data centre operations.
Notably, Prologis' own rationale "appears to support this view", Zietsman said, noting that the US company repeatedly highlighted the embedded value within these opportunities and its belief that its scale and financial strength can accelerate their monetisation.
Peel Hunt analyst Matthew Saperia agreed that future returns were a key consideration, arguing that the latent value in Segro's pipeline alone warrants a premium valuation. As such, he said, "we do not view an offer on these terms as attractive".
On the other side of the coin, Cahill said the Segro board and management team "would need to consider the best interests of shareholders given the UK REIT sector has traded at a significant discount to NTA for some years," even for companies with benefit from fully liquid equity, a portfolio in a structurally supported sector, a strong balance sheet and a management team with a proven track record for excellence".
The wider implications extend beyond Segro, as the company represents almost a fifth of the UK listed property sector by value.
If Prologis succeeds, it would remove one of the market's largest and highest-quality REITs and, said Cahill, "would represent a serious challenge to the long-term viability of the UK listed property sector".
