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Hammerson shareholders face stick-or-twist conundrum as Klépierre circles

Shareholders in U.K.-based retail landlord Hammerson PLC who also hold stakes in the company's merger partner Intu Properties PLC will face a difficult choice if French rival Klépierre makes an improved formal offer for the company, industry analysts said.

Klépierre confirmed a March 19 report by The Times that it made an informal approach to Hammerson's board March 8 with a bid for the company that valued it at roughly £5 billion. Hammerson rejected the bid within 24 hours, Klépierre said in a statement. Hammerson Chairman David Tyler called the offer "wholly inadequate and entirely opportunistic," in a March 19 company statement.

The approach by Klépierre complicates Hammerson's ongoing merger with Intu, which has received a largely negative response from the market, illustrated by an 18.2% fall in Hammerson's share price from the announcement of the deal in December 2017 through March 16. Klépierre's offer of 615 pence per Hammerson share reflected a 40.7% premium to Hammerson's closing price of 437.10 pence March 16. Of the 25 largest institutional investors in Hammerson, 20 also own stakes in Intu, according to S&P Global Market Intelligence data. These shareholders own a combined 63.3% of Hammerson and 70.8% of Intu, the data shows.

"There will be a number of shareholders, particularly those who are Hammerson-only shareholders, who will be thinking a lot more about their assessment of the Intu deal," Colm Lauder, real estate equity analyst at Dublin-based stockbroker Goodbody, said in an interview.

Klépierre's statement on its offer said the French real estate investment trust must clarify whether it intends to make a bid for Hammerson by April 16 in accordance with the U.K. Takeover Code. "If there is a revised bid [from Klépierre] coming [in before] the April 16 deadline, that would certainly make people reassess their options," Lauder said.

An improved offer from Klépierre valuing Hammerson's shares at about 650 pence to 660 pence, which would imply a 15% discount to the U.K.-based company's 2017-end net asset value and reflect some uncertainty about the U.K. retail sector's prospects, "wouldn't be an overly bad position for [Hammerson's] shareholders," said Lauder. "I think it would be well-received," he added.

Klépierre's move comes at a time of consolidation in the European retail property sector, particularly among the market's largest retail REITs. Hammerson's £3.4 billion offer for Intu in December was followed a week later by Unibail-Rodamco's $15.7 billion move to acquire Westfield Corp., which has two properties in London. Europe's largest listed retail landlords are increasing their focus on prime assets as the rise of e-commerce and sluggish consumer spending growth impact lower-quality properties.

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Both Hammerson's merger with Intu and a potential Klépierre takeover of Hammerson present drawbacks for Hammerson shareholders, an equity analyst who did not wish to be identified said in an interview. While Hammerson's deal for Intu would create a retail property giant with a FTSE 100 market capitalization that would attract forced buying from index-tracking funds, it would significantly increase the company's exposure to the U.K., effectively "doubling down into a lower-growth market," the analyst said. Meanwhile, Klépierre would struggle to extract any cost or revenue synergies from a deal for Hammerson as the U.K. company's capital structure and approach to asset management is "already pretty good," the analyst added.

"Neither deal I think is a shoo-in. Neither deal is fantastic. Neither deal makes me stand on the desk and say, '[Wow!] I want that to happen,'" the analyst said.

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For Hammerson shareholders, "it comes down to trying to understand the differential equation between the [three companies] — basically a bit of three-dimensional chess," said the analyst. "Forget the fundamentals. Which creates value?"

Any further move by Klepierre for Hammerson might also have to consider the U.K. company's major South African shareholder, Coronation Asset Management Proprietary Ltd. Hammerson's merger with Intu is particularly attractive for Coronation, which holds 9.2% of Hammerson's stock and 20.5% of Intu's, as both companies are listed on the Johannesburg Stock Exchange, as well as London's. This allows South African investors "to invest overseas without eating into their overseas investment allowance," the analyst said. "It's a very, very efficient way for them to get capital out of the country without getting capital out of the country," the analyst added. Klépierre might have to commit to retaining a dual listing if it were to attract the support of Coronation for a deal, said the analyst. Coronation was approached for comment but did not reply by the time of publication.

The structure of Klépierre's informal offer for Hammerson is also something that could turn the heads of the U.K. company's shareholders, according to Mike Prew, real estate equity analyst at investment bank Jefferies. "The positive of a rival offer for Hammerson is a partial cash element (rather than the all stock swap at 0.4765 [of a Hammerson share for each Intu share])," Prew said in a March 19 note responding to the news of Klépierre's approach to Hammerson. "So Klépierre's interest in Hammerson could upset the marriage proposals with Intu to form the U.K.'s largest REIT at £6.2 [billion], but Klépierre's plus Hammerson gives a [market valuation] of £13.1 [billion]."