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2 hours ago
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Here we go (yet) again: another opportunistic takeover bid from the US for a UK company. The fun at easyJet isn’t even over yet, but the next target is Segro, the property firm known as Slough Estates until the branding merchants decided a slicker name was needed for a portfolio that these days extends well beyond Berkshire and deep into continental Europe.
Warehouses and logistics centres stir few sentimental or patriotic feelings but Segro is the biggest commercial landlord on the London stock market. If it eventually falls to Prologis of the US, we will be asking – not for the first time – whether the UK knows how to value what’s under its own nose.
One assumes Prologis’s approach at £12.6bn, or 925p a share, is an opening shot because it was obviously going to get a firm no – “a long way short of Segro’s own views on value,” said the target’s board. Quite: 925p is merely the per-share value of the assets, the first valuation yardstick in property-land.
It is true that Segro shares were almost 25% below that price on Tuesday. It is also the case that plenty of UK property groups, or real estate investment trusts (REITs), have changed hands at less than asset-value in recent years. But there are also reasons Segro is slightly different – and why it would be depressing if it is taken out at less than a rich price.
For starters, big-box warehouses, which are 35% of the portfolio, are at the in-demand end of the property market in the age of online shopping. And the enticing prospect is AI datacentres, the coming opportunity. They make up only 8% of Segro’s portfolio at present but have a heavier weighting in the development pipeline – more than 2.5GW of datacentre capacity, says the company. The skew towards the space-constrained south-east of England is the real appeal.
Meanwhile, Segro’s financial performance over the past decade has been roughly what investors seek in a property portfolio: the asset value has improved at a compound rate of 8%, as have earnings per share and dividends.
So why were the shares trading at 25% below asset value until Prologis showed up? Segro can point to the effect of the Iran war on interest rate expectations (another important valuation metric for income stocks). Its share price was 840p at the end of February, but a pound lower at the start of this week.
Equally, though, the US firm could point out that a discount to asset-value has been a normal state of affairs at Segro for the past three years – an average of 17%, it calculates. Since the offer is an all-share affair, the invitation to Segro’s shareholders is to switch into a better-performing stock in a far larger group (it’s worth $130bn) with a global span. What’s more, Prologis would argue it has greater financial muscle to develop Segro’s portfolio, including the datacentres, at pace, which is probably true.
But that argument misses the fact that Segro shareholders were already free to buy Prologis stock if they wished. A fair proportion of them, one assumes, are on Segro’s register because they liked the 62%-38% UK-continental European balance coupled with increasing exposure to AI growth. At Prologis, those assets would represent only a tenth of the whole.
There’s a price for everything, of course, and Prologis paper could obviously be converted into cash for those who don’t want to hold it. But, assuming the Americans return for a second pop, one hopes Segro’s investors show proper resistance.
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“Shareholders should demand a far better offer from Prologis for it to be taken seriously and control to be ceded,” reckons Shore Capital.
Panmure Liberum’s analyst says: “The most significant takeaway is that the world’s largest logistics REIT sees sufficient long-term value in [Segro’s] platform to pursue a transaction at all.”
In other words, third-party endorsement ought to serve as a valuation prop of some form if Segro survives this encounter. Not all Wednesday’s 17% rise in the share price should evaporate. There is no reason to roll over for another US bargain hunter.
