The merger between Hammerson and Intu will set a new benchmark for European retail destinations, says group chief executive David Atkins.
Atkins, who will become chief executive of the enlarged group, said in a webinar to investors: “We are excited about the opportunity to combine the expertise across the portfolio. This is about making the shopping experience more fun for our customers and creating a good consumer brand.
“We plan to harness the expertise from both companies to make this an even more tailored and targeted business.”
What will it be called?
Hammerson will be the name of the property company, and the centres will all gradually be rebranded as intu. This means we can expect to see the likes of intu Grand Central and intu Bullring on the horizon.
Atkins said: “The company and the investment vehicle will be called Hammerson and then we will roll out the intu brand across the centres.”
How long will it take?
The transaction to merge the two business is expected to complete by the end of 2018. Atkins said the process would likely be reviewed by the competition and markets authority, but he expected the process to reach only phase 1 review.
He said: “Rest assured that we would not have launched this offer if we could not complete it. I am confident that even where there are overlaps we can provide the best for our retailers. I think we will need to go through a regulatory approval with the CMA and we are confident that it will be a phase 1, but we are being cautious into how long that process will take.”
What will they sell?
The deal, valued at £3.4bn, will involve the enlarged group undertaking a disposal programme of at least £2bn to “strengthen its balance sheet and provide liquidity to reinvest in higher-return opportunities”.
The companies have not yet identified which assets will be disposed of, but said that these assets would be UK-focused and derive from both Hammerson and Intu’s existing portfolios. The disposal will be executed in the short to medium term.
Atkins said: “We have a good track record of executing disposals and we will continue to do this ahead of the anticipated completion of the transaction to reduce leverage and provide capital for upcoming opportunities.”
Hammerson chief financial officer Timon Drakesmith added: “We will use the proceeds to repay debt, reduce leverage and refinance Intu’s debt.”
Hammerson announced separately this morning that it had sold French shopping centre Saint Sébastien, in Nancy, to AEW Ciloger on behalf of SCPI Laffite Pierre and Actipierre Europe for a net vendor price of €162m (£143m)
What will happen to each company’s development pipeline?
The acquisition of Intu will add around £1.5bn to Hammerson’s current development pipeline. The added schemes include projects underway in Spain and in the UK, which the new enlarged company will take on together.
Atkins said: “The portfolio will have an enlarged development pipeline and we are excited about taking on projects in Spain and the UK in projects such as Merry Hill where we will upgrade the F&B.”
How much will it cost?
The merger is expected to save £25m a year through consolidation. About 70% of these savings will come from streamlined group and support functions, which includes executive management.
Reduced costs from a consolidated IT and digital platform alongside lower costs of premises and other corporate costs, including professional services fees, make up the balance.
However, the cost of integration will be £40m, which, considering the £25m of annual savings, is a “weak” improvement in earnings, according to Jefferies.
The deal will take the companies’ LTV to 41% once acquisitions and disposals are completed – four percentage points higher than Hammerson’s reported LTV in June and nearly six percentage points lower than Intu’s LTV.
Hammerson’s financial guidelines have historically stated that LTV should not exceed 40%. The company said in its statement this morning that it expected there to be more opportunities for refinancing and cost savings after the merger.
Net debt is expected to hit £8.2bn as a combination of Hammerson’s £3.6bn and Intu’s £4.6bn of net debt.
Hammerson said its dividend growth would be “at least in line” with its historical growth, which was 7.6% in 2016.
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