The owner of Birmingham’s Bullring shopping centre has agreed to buy the company behind the Lakeside mall in Essex in a deal that will create Britain’s biggest property company worth £21bn.
Hammerson, which also owns the Brent Cross shopping centre in London, is acquiring smaller rival Intu in a £3.4bn deal.
It will hand Hammerson Intu’s porfolio of shopping centres in the UK and Spain, including Manchester’s Trafford Centre and the Metrocentre in Gateshead. Hammerson owns property in Ireland and France as well as the UK.
The combined group will retain the Hammerson name and led by Hammerson’s chief executive, David Atkins. He described the deal as “an exciting milestone in the history of Hammerson”, strengthening its portfolio and opportunities for growth, including in Spain and Ireland, two of Europe’s fastest growing economies.
“Bringing together the high-quality portfolios of both companies establishes Hammerson as a larger, leading European retail Reit [real estate investment trust], enhances shareholder returns and supports opportunities for long-term growth,” Atkins said.
“The acquisition creates a leading pan-European platform of desirable retail and leisure destinations which are better positioned to serve the needs of our retailers, excite our customers and support our partners and communities.”
Shares in Hammerson fell 2% after the deal was announced, while Intu shares jumped 20%.
Hammerson said it expected the deal to generate £25m of annual pre-tax savings by the end of the second year, as a result of lower office costs, and by combining support functions such as IT and digital operations. The company expects a one-off cost of about £40m as the two businesses are integrated.
The combined company plans to sell at least £2bn of assets to strengthen its balance sheet and to allow it to reinvest in other, higher return opportunities, Hammerson said.
The deal would result in Hammerson shareholders owning about 55% of the enlarged company, with the remaining 45% owned by Intu shareholders.
Hammerson, a FTSE 100 company, has received backing from investors who hold 50.6% of Intu shares – including from Peel, the property company founded by John Whittaker, currently deputy chairman of Intu. Whittaker would retain the same role in the combined company.
John Strachan, chairman of Intu, would become senior independent director. He said the deal between the two companies would “present a highly attractive proposition for retailers and shoppers in Europe’s leading cities”.
He added: “A combination of both Intu and Hammerson will create a more resilient, diversified and stronger group that we believe will benefit all our stakeholders.”
The new board will comprise six directors nominated by Hammerson, and four by Intu. David Tyler, Hammerson’s chairman, will become chairman of the new company.
“The cost of living squeeze on UK consumers from higher inflation is forcing companies like Hammerson and Intu into action,” said Jasper Lawler, head of research at London Capital Group.
“Online shopping means shopping centres and high street shopping are in a long-term malaise. Shareholders will want to see assets sold down in the merged company to help fund the deal and to reflect the lower demand for brick and mortar stores.”