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Jim Armitage: Hammerson must be hammered to bid so high for Intu

Hammerson and Intu own a number of UK shopping centres: PA
Hammerson and Intu own a number of UK shopping centres: PA

A few weeks ago, Intu shareholders had a result. Having ill-advisedly backed a mid-table shopping centres operator — not quite West Brom, but a far cry from Man City — they suddenly found themselves at the receiving end of a juicy takeover bid.

Hammerson — snapping at the heels of Premier league leader Westfield, with a line-up from Brent Cross to Birmingham’s Bullring — was set to pay £3.4 billion (or 231p a share) for their company. That was way ahead of its previous share price.

Trebles all round for Trafford Centre tycoon John Whittaker, who owns more than a quarter of Intu’s shares.

The trouble was, the shareholders at Hammerson weren’t so sure. Why shackle our business to a worse one, they asked?

They just about bought the idea of sharing overheads — maintenance, entertainment budgets and such like. But they couldn’t see the point in a deal largely predicated on flogging £2 billion-worth of the tumbleweed centres in “secondary locations” — estate agent speak for crap towns. Particularly at a time when bricks and mortar shops are in long-term cyclical decline (a key reason for the merger in the first place).

Hammerson investors’ nerves proved justified when French bidder Klépierre came in with a bid for their company. Cheekily cheap, it may have been, but it highlighted Hammerson’s prize status.

Its shareholders have been asking around the market and confirming their concerns that selling that £2 billion-worth of second division malls into a declining market won’t be easy. The best operators have spent the past decade ditching their weaker shopping centres.

So now Hammerson shareholders have been telling management either to drop the Intu deal, or get a lower price. Dutch pension fund APG, Hammerson’s biggest investor, will vote against the deal.

Today, in a naked effort to get the sale back on the rails, Intu issued a statement saying how wonderfully its business is doing.

It tries to dispel the myth that its centres are weak, pointing out that 80% of the value of its assets is in top-ranked sites such as Lakeside in Essex and Trafford Centre in Manchester.

The near-death experiences of big tenants such as New Look, Toys R Us and Prezzo have barely made a scratch on our strong rental income, it argues.

But don’t be fooled.

Although it does have some decent malls, Intu’s portfolio is undeniably weaker than Hammerson’s.

Furthermore, it has extended itself more aggressively debt-wise, with a loan-to-value ratio of 45% against Hammerson’s 36%.

That’s not a business positioned for the decline in the retail sector we all know is happening.

Hammerson needs to do a proper stock-take on its Intu plan, and either slap a discount on its offer, or pull it.

Intu’s Whittaker, a lifelong United fan, must get used to coming second this season.