Real estate investment trust Hammerson (LSE: HMSO) confirmed in an announcement this morning that it received on 8 March a “highly preliminary and non-binding proposal” from French shopping centre operator Klépierre SA regarding a possible £4.88bn cash and share offer. The directors at Hammerson rejected the approach.
The proposal valued Hammerson at 615p per share — a premium of about 41% to its closing price on March 16 — and would have been settled with 50% cash and 50% with new Klépierre shares. The firm’s shares shot up on the market’s opening bell and, as I write, sit at around 545p, still some 25% higher than Friday’s closing price despite the firm saying no to the offer.
Value is in the eye of the beholder
Prior to today’s news, Hammerson’s share price had declined around 36% over the past two years and the directors said today that Klépierre’s approach was “unsolicited and entirely opportunistic in its timing.” They say they unanimously threw out the proposal on the grounds that it “very significantly undervalues Hammerson, its track record of delivery, the quality of its portfolio, its market positions, and the opportunities it has for future value creation.”
I think the directors make a good point. The fact that the offer was at such a premium to the stock market’s valuation of Hammerson means that Klépierre’s directors saw greater value in the company. Now the stock market has woken up, which is why the shares are still 25% up even though the offer is a non-starter as far as Hammerson is concerned. Looking forward, maybe others will recognise Hammerson’s value and we may even see better offers from either Klépierre or other companies down the line.
Meanwhile, Hammerson said it “remains fully committed” to the acquisition of Intu Properties, which it announced on 6 December. The aim is to combine two “high-quality portfolios” under Hammerson’s management team. The directors think the Intu portfolio has many “large desirable high-footfall assets” and “a wealth of value-enhancing leasing and asset opportunities” that it can develop as well as realising around £25m in synergy savings annually.
Following the quality option
Chairman David Tyler seems clear that the best way forward is to be an acquirer rather than an acquiree. His comments were scathing about Klépierre’s move saying that as well as offering a price well below book value, the company was also asking shareholders to accept “a large element of paper in a company which in our view has a lower quality portfolio and lower growth prospects (than Hammerson’s).”
So, should you pile into the shares now they are up 25% and ‘in play’, so to speak? At first glance, the current valuation remains attractive. At the current share price around 545p, the discount to book value runs at 28% or so, and the forward dividend yield runs close to 5%. But Hammerson specialises in leasing retail properties and it’s no secret how tough trading in the sector has been for many retail firms lately. I think that situation reflects in the share price weakness we’ve seen with Hammerson over the past couple of years. I’m happy to watch developments from the sidelines for now and will look for other stocks for my retirement portfolio.
