Retail REIT Hammerson has had a £3.4B offer for smaller rival Intu recommended, creating a business with £21B retail assets in the UK and Europe.
The move, which values Intu at about 28% more than yesterday’s stock market pricing, would bring Hammerson’s 1.2M SF Birmingham Bullring and Intu’s 1.4M SF Merry Hill into single ownership.
The UK Competition and Markets Authority has already taken a keen interest in the combination of Birmingham shopping centres under single ownership, announcing in 2016 an investigation into Hammerson’s control of both the Selfridges-anchored Bullring and the 500K SF Grand Central, anchored by John Lewis. The Authority ordered Hammerson to run Grand Central as a separate business.
"Competition risk is possible," Liberum analyst David Brockton said of the deal in general.
Hammerson said once the two businesses were merged it would sell £2B of U.K. assets in the short to medium term.
The Grand Central intervention was not the first time UK competition regulators had intervened ahead of the combination of a regional out-of-town centre and a city centre mall. In 2011 the Office of Fair Trading investigated the combination under Capital Shopping Centres (which became Intu) of Manchester’s city centre Arndale and out-of-town Trafford Centres. The OFT decided against a reference to the Competition Commission.
Intu became the sole owner of Merry Hill last year after buying out co-owners Queensland Investment Corp. for £410M. Intu had plans for a 100K SF extension. In June Intu announced that Next would take a 76K SF former Sainsbury store at Merry Hill as part of the centre's transformation.
Also included in the Hammerson deal are intu Lakeside, Essex; intu Metrocentre, Gateshead; intu Milton Keynes; intu Potteries; intu Trafford Centre, Manchester; intu Uxbridge; intu Victoria Centre, Nottingham; intu Watford; Manchester Arndale; St David's, Cardiff; and The Mall, Cribbs Causeway.
Consolidation is being driven by a continued squeeze on brick-and-mortar retail amidst a general tightening in consumer spending. In November the UK recorded its first year-on-year fall in retail spending since the economy pulled out of recession in 2013.
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