Intu Properties surges as consortium mulls offer
One of Intu Properties' senior directors is leading a consortium of investment companies to buy the shopping centre owner, leading to speculation that a bid battle could emerge.
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Deputy chairman John Whittaker's Peel Group, which already owns almost a 27% stake in Intu, has teamed up with Saudi conglomerate Olayan Group and Canary Wharf owner Brookfield Property Group to launch possible cash offer for Intu six months after the collapse of an agreed £3.4bn merger between Intu and rival Hammerson.
Intu shares, which had fallen around 30% since the collapse of the bid and are down 45% since the start of 2017, surged 25% to 186.48p on Friday morning. With 17 shopping centres around the UK and Europe, Intu's net asset value stood at 309p per share at the end of June.
Peel confirmed a story in trade title EG published after the close on Thursday that the consortium, which has a combined shareholding of 30%, was "in the preliminary stages of considering a possible cash offer" but that no approach had yet been made as its consideration was still at a "preliminary and exploratory stage".
Likewise, Intu, which at the half year stage had a huge £4.7bn of net debt, confirmed that it has not received an approach from the consortium but has formed an independent committee comprising all directors other than Whittaker to consider any approach.
London takeover rules require Peel et al to make a firm intention to make an offer by 5pm on 1 November.
As Hammerson has rejected an approach from France's Klépierre, there is speculation that Peel's interest could bring other buyers out of the woodwork.
Klepierre said in April that it was still interested in acquiring assets in Britain after abandoning a £5bn approach for Hammerson, accusing the British property company of failing to provide “meaningful engagement” over a potential deal.
Shares in Intu's property sector peers British Land, Land Securities, Hammerson and Capital & Counties also rallied on the news.
Analysts at Citigroup said "the value of Intu could be attractive to others", mentioning Klepierre and its "informal" bid for Hammerson that did not proceed and Franco-Dutch giants Unibail-Rodamco-Westfield, which "are busy" integrating Westfield.
"With Peel as the largest shareholder now in a consortium with Brookfield it would appear other bidders would have to venture down the less desirable hostile route," Citi said.
Broker Numis felt there was "limited likelihood of a bidding war", noting that John Whittaker is "a special purchaser given his c.7yrs spent as deputy chairman and former ownership of jewel in the crown Trafford Centre".
Analysts said a bid "would not be without complications", with Intu "over-leveraged" at peak valuations at 49% loan-to-value, with its legacy debt structure "expensive to reprofile", and the business facing a "highly challenged outlook over the next few years as capital deflation bites and it has limited capacity to finance the extensive defensive capex that is needed, heightening the risk of further loss of relevance in the fast-evolving world of physical retail".
Numis suggested that, while details on pricing had not been confirmed, a bid at 20-30% above the share price would imply a range of 180-195p, the top end of which is a 45% discount to NAV. "Whether this would be sufficient to entice the c.70% of INTU’s register not owned by Peel/Olayan is hard to judge, but key to success will be getting Coronation, the Gordon Family and BlackRock on side given their combined circa 37% interest."
Expecting a bid to be forthcoming, Kempen said that with 29.9% already owned by the consortium and a likely ownership threshold of 50%-plus-one shares needed, "one could envisage a 15-20% premium to the current share price being required", with a bid of around 175p giving an implied valuation write-down of circa 25%.
Analysts at Liberum said a cash bid "should warrant serious consideration by its shareholders", offering them a chance to "salvage value" ahead of a potential cash-call or dividend cut under a new CEO.
"Aside from any view on the long-term structural outlook for retail property, Intu’s prospects as a standalone entity are threatened by above average financial leverage which limits its ability to self-fund growth and maintenance capex, particularly during a period of cyclical pressure," they said.
However, while Intu’s valuation looks "staggeringly attractive" with the shares trading at 0.44 of NAV with a price/earnings ratio of 10.1, "this is flattered by elevated leverage" with an enterprise value at 0.76 of gross asset value and EV of 16.7 times adjusted operating profits, while other REITs such as Land Securities, trading at lower multiples.