For a few hours on Wednesday, it seemed possible we were about to witness a rare stock market event: a FTSE 100 company holding out against a hostile raider from the US and defying some of its own large shareholders to defend its independence.
Sadly, it didn’t happen. Segro, the FTSE 100 warehouse landlord known as Slough Estates for much of its corporate life, capitulated minutes before the deadline and said it was “minded to recommend” the “best and final” offer of £14bn, or £10.32 a share, from the US giant Prologis of San Francisco. The two sides now have until 12 August to hammer out a firm agreement.
The deal will be the biggest Footsie takeover so far in the current bid-heavy year. In a couple of ways, it will also be the most depressing.
First, because David Sleath, Segro’s long-serving chief executive, put up a decent fight and had the better of the arguments.
While most property transactions happen close to the book value of the assets (905p in this case), Sleath invited Segro’s shareholders to lie back, be patient and think of the growth opportunities in AI datacentres and big-box warehouses for online retailers and suchlike.
“A unique portfolio focused on Europe’s most supply-constrained markets,” went the argument. Segro cited an estimate from CBRE, the commercial property investment firm, of a near-£18bn valuation, or £13 a share, within a few years on a standalone basis thanks to a boost from datacentre expansion.
Prologis’s argument, in essence, was that such valuations were unrealistic because Segro lacks the financial muscle to make the most of the opportunities. Its pitch to shareholders was to take the money – or, rather, accept the terms of the share swap since the cash element of the offer, injected late in the day, is only 25%.
The 14% bid premium to the last asset valuation was enough to get some big Segro shareholders salivating. Led by Norway’s sovereign wealth fund, with an 8% stake in Segro, the calls for “engagement” had grown louder in recent days.
The tale is wearyingly familiar. Even when boards are up for a real scrap (which isn’t always the case), the dead hand of institutional money intervenes.
In this case, there is an added sense of what might have been because most of the investors calling for a deal also had holdings in Prologis, which has a $135bn (£101bn) market capitalisation. For those international investors with a foot in both camps, the quarrel over fair terms will almost have been a spreadsheet exercise in portfolio management. That doesn’t make a properly fair fight.
The second depressing feature is that, post-Segro, London’s real estate sector looks denuded. The company is the biggest listed commercial landlord by a distance and is genuinely different.
Here’s Panmure Liberum’s analyst Bjorn Zietsman in a recent note: “Segro is one of a small number of listed, pure play vehicles offering direct exposure to UK and European datacentre and logistics development.
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“If Segro is absorbed into Prologis, that exposure gets absorbed and the capital allocation decision behind it disappears. Investors lose the ability to choose UK/European datacentre and logistics growth specifically, and instead inherit whatever weighting Prologis’s management chooses to give the UK and Europe within a global platform spanning 20 countries and £200bn of combined assets under management.”
In other words, a small piece of diversity is lost from the London stock market, at least in the property sector. You’ll still find plenty of real estate investment trusts offering the usual bland mix of London office blocks and regional shopping centres, but multi-decade pan-European plays on AI datacentres are harder to come by.
Prologis’s promise to get a secondary listing in London is not a consolation: we know from experience that most of those add-on listings don’t last because trading in the shares inevitably gravitates to the US.
The loss of the company that began life as the Slough Trading Company in 1920 probably won’t register on UK political radars, but it ought to. This takeover is another entry in the hollowing-out of the UK stock market, which has become an easy hunting ground for overseas firms with richer valuations.
One would grumble less if the take-out prices were other-worldly. In Segro’s case, though, the terms look only so-so if one takes a long-term view. The outcome could have been different. This is (another) bad one to lose.