More pros than cons

SA fund man­agers dis­miss Simon’s crit­i­cism of Traf­ford deal

Finweek English Edition - - COMPANIES & MARKETS - Cents

DAVID FIS­CHEL is no doubt re­lieved United States real es­tate gi­ant Simon Prop­erty Group has given up on its hos­tile over­tures to buy Cap­i­tal Shop­ping Cen­tres (CSC), clear­ing an im­por­tant hur­dle in CSC’s bid for the £1,65bn (around R18,15bn) Traf­ford Cen­tre in Manch­ester. How­ever, the ac­qui­si­tion of the 190 000sq m tro­phy prop­erty is by no means a done deal. The CE of Bri­tain’s largest mall owner would only know the out­come on 26 Jan­uary, when share­hold­ers voted on the Traf­ford ac­qui­si­tion.

But chances ap­peared favourable that more than 50% of CSC’s share­hold­ers would ap­prove the deal. That de­spite Simon – a 5,11% share­holder in CSC and the largest listed prop­erty com­pany in the world, with a mar­ket cap of US$29,14bn (R201bn) – urg­ing fel­low CSC share­hold­ers to vote against it. South Africans, in­clud­ing the 14% stake of the Don­ald Gor­don fam­ily, con­trol around 45% of CSC through its dual list­ing on the JSE.

Simon claims CSC is pay­ing too much for Traf­ford, de­spite the re­cently re­vised of­fer from £1,6bn (R17,6bn) to £1,575bn (R17,325bn). The lat­ter will be funded by a share is­sue, cash and con­vert­ible bonds to the Peel Group, the cur­rent owner of Traf­ford, which will see Peel be­come the biggest sin­gle share­holder in CSC with a 23,2% stake.

He says in a re­cent cir­cu­lar: “The Traf­ford trans­ac­tion re­mains deeply unattrac­tive for CSC share­hold­ers, as it will trans­fer sig­nif­i­cant con­trol of CSC to Peel, di­lut­ing ex­ist­ing share­hold­ers’ stake in CSC.”

How­ever, SA prop­erty an­a­lysts and fund man­agers say Simon’s claims are for the most part self-serv­ing: any plans by Simon to to re­sume its takeover at­tempts will no doubt be more dif­fi­cult and ex­pen­sive once the Traf­ford deal is ap­proved. English law al­lows Simon to make an­other of­fer for CSC in six months’ time.

Evan Robins, head of listed prop­erty at Old Mu­tual In­vest­ment Group, says Simon made some fair and some ill-founded crit­i­cisms that, on bal­ance, they don’t sup­port. “The Traf­ford ac­qui­si­tion may not be cheap and pric­ing can be de­bated but this is an un­com­mon op­por­tu­nity to ac­quire a su­pe­rior cen­tre to any cur­rently in the CSC port­fo­lio. And the deal is for shares not cash.”

Robins notes Simon’s in­ten­tions to make an of­fer for CSC has in fact ben­e­fited CSC share­hold­ers to the tune of R1bn. “Be­cause of Simon, the cap­i­tal-rais­ing was done at a ma­te­ri­ally higher share price and the pro­posed Traf­ford cen­tre ac­qui­si­tion was rene­go­ti­ated at bet­ter terms.”

Stan­lib is also in favour of the ac­qui­si­tion. “We be­lieve Traf­ford is not only a great as­set but also a scarce one, pro­vid­ing CSC with fur­ther crit­i­cal mass and di­ver­sity,” says Stan­lib’s head of prop­erty funds, Keillen Ndlovu.

CSC’s re­vised terms to ac­quire 100% of Traf­ford im­plies the cen­tre will be bought at a nom­i­nal equiv­a­lent yield of around 5,8%, which isn’t too de­mand­ing, given the mall is rated as one of Bri­tain’s four biggest and most valu­able shop­ping cen­tres, says Jamie Boyes, prop­erty an­a­lyst at Cape

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