Why is the St Modwen Properties share price up 20% today?

Blackstone has made a £1.2bn offer for St Modwen Properties, and investors have driven the latter’s share price higher today.

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The St Modwen Properties (LSE:SMP) share price is up nearly 20% today. The reason is undoubtedly the news of Blackstone, a private equity firm, making a £1.2bn takeover offer for it. The offer is a cash one and would work out at 542p per share. That would be a 21% premium to St Modwen’s closing share price of 448p on 6 May 2021.

St Modwen shareholders certainly seem to favour the offer as they have bid up the share price to 533p today. That suggests that if this went to a vote, they would approve. Any shareholders that bought St Modwen in the depths of the market crash will be looking at around a 55% one-year gain if the takeover offer is approved. It’s also worth noting that today’s price rise has returned the St Mowden share price to its pre-crash highs. 

Although it’s early days, management has not outright rejected the offer as undervaluing the company and is working with Blackstone to complete due diligence checks. However, this is a conditional offer. Blackstone has until 4 June to formalise it without asking for an extension. Even if the due diligence checks are satisfied, Blackstone can withdraw or make alternative offers if certain conditions are met. With all that in mind, it is probably worth considering why Blackstone might want St Modwen in the first place.

Why Blackstone wants the firm

St Modwen’s business focuses mainly on two sectors: logistics and housebuilding. These make up 78% of the firm’s portfolio, and the plan is to increase this towards 90% within three years. At present, 49% of the portfolio is dedicated to the logistic business, and 27% to homebuilding. A third sector, strategic land and generation, is diminishing in importance, falling from 35% in 2019 to 24% in 2020.

It’s the logistics business that is probably of most interest to Blackstone. Owners of warehouses, infrastructure and distribution networks have benefited enormously from the shift to online shopping. This benefit accelerated during the pandemic as retail, leisure, and office properties stood empty whilst warehouses filled up with stock for online channels and rents were pretty much paid in full.

Blackstone has been buying — mainly through its Mileway unit — properties to store goods in and deliver from across Europe at pace since well before the pandemic struck. Although it’s worth noting that it recently put up some non-core warehousing properties for sale, an offer for St Modwen fits with Blackstone’s long-term strategic logistics plan. This is to focus on urban warehousing, which St Modwen has plenty of. The bet is that shortening delivery times will be important for online retail going forward. Therefore, storing goods closer to where the customers are will see increased demand.

St Modwen share price: where next?

What will happen next for the St Modwen share price depends on Blackstone. If the offer is formalised and approved, current shareholders will be taken out for 542p per share. That would be a short-term gain of 1.68%. If the offer is withdrawn completely or modified, the St Modwen share price could reverse today’s 20% rise in part, or in full, or perhaps go beyond that.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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