London: Segro Plc investors are pushing Prologis Inc to improve its all-stock offer for the United Kingdom’s largest publicly traded property company, a £12.6bil deal that would come with a pipeline of data centre (DC) assets.
Jupiter Fund Management said Prologis’ offer comes in “slightly below” the value of Segro’s underlying assets.
Segro’s stock historically commanded a premium, said Chris Morrison, an investment manager at Jupiter, whose firm owns close to 1% of Segro shares.
“Segro owns a unique set of high-quality assets across the United Kingdom and Europe, together with an attractive pipeline of DC developments,” he said.
The approach by the world’s No 1 owner of industrial property marks the biggest takeover attempt of a publicly traded European property firm.
It comes at a time when some industrial landlords are exploring the potential to convert their warehouses with power connections into DCs as they look to cash in on the artificial intelligence boom.
Like most UK landlords, Segro has been trading at a persistent discount to the reported value of its assets since interest rates began to climb in 2022.
The landlord was trading at a discount of almost 20% to its last reported valuation before Prologis’ interest emerged.
By contrast, US DC real estate investment trusts or REITs, including Equinix Inc and Digital Realty Trust Inc, are trading at elevated earnings multiples as the market anticipates significant growth ahead.
Prologis said a combination would help “unlock the significant embedded value of Segro’s development and DC pipeline”.
London-based Segro said the takeover offer was “opportunistically timed” and far below its own valuation.
The firm saw a gradual recovery in its share price derailed by the outbreak of the Iran war, as bond yields rose in anticipation that the energy shock would lead to higher inflation and interest rates.
Higher bond yields often lead to lower property valuations, as investors demand higher returns to invest in bricks and mortar.
Net asset value, a popular way of measuring value in real estate investment trusts, alone does not fully capture the strategic worth of Segro, said Matthew Norris, head of real estate securities for Gravis Capital Management, which holds 0.11% in Segro.
“The board’s response suggests it believes the proposal fails to adequately compensate shareholders for that long-term strategic value,” he said.
“In situations like this, net asset value should be viewed as a starting point rather than the final measure of what a business is worth to an acquirer.”
Conor Muldoon, portfolio manager at Causeway Capital Management LLC, which holds nearly 2% of Segro, said the UK company has as “a strong balance sheet and opportunities to create value through synergies across the combined assets”.
“We look forward to seeing a formal offer from Prologis,” he said.
Segro rejected Prologis’ 925 pence per share offer at the end of June. Prologis, which argues that it offered a full value for the asset, must announce a firm offer or withdraw by July 22.
Some of the largest investors hold stock in both Segro and Prologis. Segro’s five biggest shareholders, index funds including Blackrock Inc, Norges Bank and T Rowe Price Group Inc, own more than 30% of Segro’s outstanding shares, Bloomberg-compiled data showed.
While these investors typically don’t make their views on deals known, some have become more vocal in speaking out on recent transactions.
Fidelity International, a 8.9% holder of DCC Plc, said the buyout offer from KKR & Co and Energy Capital Partners undervalued the energy company. — Bloomberg
