Intu share price plunges as Brexit thwarts buyout offer

UK shopping centre owner share price down by more than a third.
The collapse of the deal has been described as ‘unambiguously bad’. Image: Shutterstock

The share price of JSE-listed UK shopping centre owner Intu Properties plunged on Thursday after a £2.9 billion buyout offer to take the group private collapsed.

Intu announced in a Sens statement that the consortium of investors that was looking at buying the company had decided against the deal. The consortium included UK-based Peel Group, Saudi Arabia’s Olayan Group, and Canada’s Brookfield Property Group.

The collapse of the deal saw Intu’s share price fall by almost 40% from R34.21 to R20.80 at close of business. It is the second buyout deal in less than a year to fall through after property giant Hammerson withdrew its £3.4 billion offer to purchase Intu in April.

While Intu did not specifically mention Brexit in its statement, the UK’s messy exit from the European Union seems to have claimed another victim. Retailers and landlords in the UK are feeling the impact of the Brexit fallout, with several retail closures and consumer confidence falling to a year low. UK department store chain House of Fraser, which underwent administration earlier this year, recently announced it would be closing four of its stores at Intu shopping centres.

Consortium, committee, due diligence

In the latest buyout offer, the Peel-led consortium approached Intu on October 4, which led to Intu forming an independent committee to consider the deal. The committee granted the consortium access to certain due diligence material on October 19. 

“Good progress was made with the consortium over the following weeks, with three extensions to the original firm offer deadline of November 1 made to enable them to continue their work, the last to 5pm on November 30,” Intu explained.

“The consortium confirmed to Intu on November 21 that its legal, tax, accounting, and commercial due diligence was largely complete and that nothing had arisen from the due diligence workstreams that would lead it to alter the terms of its revised indicative proposal of 210.4 pence per share (exclusive of the 4.6 pence interim dividend which has since been paid),” it said.

However, the consortium announced on Thursday that, given the uncertainty around current macroeconomic conditions and the potential near-term volatility across markets, it was not able to proceed with an offer within a timeframe that is manageable within the confines of the code timetable, Intu explained.

The group has a £9.6 billion portfolio of 17 prime regional shopping centres in the UK (£8.8 billion) and three in Spain (£8 million), with some 400 million annual customer visits. It says properties in its portfolio make up eight of the top 20 centres in the UK and three of the top 10 in Spain.

Garreth Elston, a portfolio manager at Reitway Global, says the withdrawal of the offer is very negative for Intu, as evidenced by the sharp drop in its share price.

“However, it was not unexpected as the bulk of the market was discounting a deal being reached … The company is beset by structural and sector negativity. There were several doubts in the market as to its intrinsic net asset value (NAV). Most market participants are viewing the actual figure as being far below that of the company’s figures, given the headwinds in the company itself, plus Brexit impacts and UK retail in particular,” he said.

The market is not impressed

Evan Robins, portfolio manager at Old Mutual Investment Group, says the collapse of the deal was “unambiguously bad”.

‘Jilted twice’

“Jilted at the altar twice now in such a short time … Intu has a much lower dividend next year, highlighting the need to preserve cash within the company.”

Reflecting current negative sentiment towards UK retail property, Intu’s property values reduced by about 9% in the first nine months of 2018, reducing its NAV per share to 344 pence.

Intu said: “Given the heightened macroeconomic uncertainty and the reduced pool of potential buyers at present for UK shopping centres, asset disposals are expected to be challenging to deliver in the next few months.”

The group said it therefore intends to substantially reduce the payment of dividends in the short term: “Intu’s focus is on delivering strong total shareholder return over the medium term and believes that maintaining cash in the business, by reducing the dividend to fund the investment programme, will be highly beneficial to the total returns Intu can achieve.”

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1st tsunami happening this weekend. (Trump vs China, China vs Trump)
2nd tsunami(Much bigger) on the 11-Dec-18. (Brexit)

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