As I write, investment firm Peel Group’s takeover bid for listed developer Harworth is in full swing.
Lem Bingley, PW editor
Begun on 6 August, Peel’s initial bid valued Harworth at £583m, about 20% above the prior day’s price and 36% above the three-month average. Peel already owned about 30% of available shares.
The Harworth board unanimously rejected the approach, labelling it “highly opportunistic”.
In its bid, Peel flagged rising overheads and financing costs, outstripping a falling rent roll. It criticised Harworth’s strategy as capital intensive and slow, and argued that listing had given Harworth little benefit, given the firm had raised no new equity in about a decade.
In turn, Harworth’s board totted up its assets and pipeline to arrive at value approaching £957m. This calculation was intended to frame Peel’s offer, 42% lower, as deeply unrealistic. Subsequently, Harworth announced a cost-saving and disposals programme to promise shareholders more jam tomorrow.
It’s evident that shareholders no longer see NAV as a trusty yardstick
Then, this morning (16 September), Peel sweetened its deal, making a revised offer valuing Harworth at about £600m. As I write, Harworth’s board is considering it but seems unlikely to budge for only 3% more than before.
While I’m not suggesting that history always repeats, it is interesting to review the equally hostile bid to acquire the much larger SEGRO, launched by San Francisco-based Prologis in June.
The initial all-share proposal valued SEGRO at £12.6bn. Prologis subsequently revised terms three times, not least by adding substantial cash into the mix. The fourth, best and final offer, issued on 22 July, valued SEGRO at around £14bn. That offer, 11% higher than the start, swayed the board.
This was, of course, a board doing its duty. The extra £1.4bn, squeezed out of Prologis over five weeks, represents a pretty solid result.
Albeit at a smaller scale, Harworth’s board is engaged in a similar battle to safeguard shareholder value.
Whichever way the struggle goes, it continues the story of UK-listed property firms as an endangered species. The last significant float of this breed was Life Science REIT, in October 2021. Since then we’ve seen no shortage of mergers and acquisitions.
The other persistent trend has been heavy discounting when market capitalisation is compared to net asset value (NAV). It’s evident that shareholders no longer see NAV as a trusty yardstick, with income and income growth now the preferred fingers in the wind.
Earlier this year, it was rumoured that US-based private equity firm Oaktree was preparing a London listing for its UK and Ireland residential assets, all managed by CompassRock. The reported goal was a valuation of around £1.2bn – enough to eclipse Grainger and become the largest UK-listed firm in the living sector.
Whether Oaktree is still contemplating that move, following its own full takeover by US-based asset manager Brookfield last month, remains to be seen. A new billion-pound property stock would be even more remarkable than Prologis’s unexpected swoop on SEGRO.
Meanwhile, if Peel and Harworth’s board eventually meet in the middle, and the firm is taken into private hands, that won’t be surprising at all.
