By Arathy S Nair and Ben Martin
(Reuters) - British shopping centres owner Hammerson Plc has agreed to buy smaller rival Intu Properties for about 3.4 billion pounds in a long-speculated deal to create a malls giant controlling 21 billion pounds of assets.
The all-share offer values FTSE 250-listed Intu at 253.9 pence per share, a 27.6 percent premium to its closing price on Dec. 5, the two companies said on Wednesday.
It will combine Intu, the owner of Manchester's Trafford Centre, with the FTSE 100 company behind Bicester Village in Oxfordshire, London's Brent Cross shopping centre and Bristol's Cabot Circus to form a group that will also have sites in Ireland, France and Spain.
Shopping centre landlords are facing an increasingly tough backdrop as retailers have become more selective with their expansion plans in response to a difficult consumer spending environment and intense competition from online rivals.
"The combination will not alter the structural headwinds impacting the retail property space," analysts at Morgan Stanley said in a note.
"Despite this, it should increase the combined group’s control of large dominant centres, helping pricing power with tenants; the group will own or partially own 17 of the UK's top 25 centres by size."
A tie-up between the pair has often been rumoured and analysts said that Hammerson had struck now in an "opportunistic" move on its smaller rival.
Robert Duncan of stockbroker Numis said that Intu shares have been trading at a greater than 50 percent discount to net asset value.
"This looks like an opportunistic attempt to get its (Hammerson's) hands on Intu’s portfolio which it believes it will be able to operate and manage more effectively than the incumbent owner," Duncan said.
Hammerson shareholders will own about 55 percent of the new company and Intu investors will own the rest.
The combined business will be led by Hammerson chief executive David Atkins. Hammerson's finance chief Timon Drakesmith will assume the same position at the enlarged company and Hammerson chairman David Tyler will retain his role.
Following the deal, the shopping centre owner will also take Hammerson's name.
Intu shares, which have lost nearly a third of their value this year, were up about 18 percent in morning trading. Hammerson shares fell about 1.7 percent.
Intu investors will receive 0.475 new Hammerson shares for each share they own and investors representing 50.6 percent of Intu's stock have already given irrevocable undertakings or letters of intent to support the tie-up.
They include Peel Holdings, the group led by billionaire John Whittaker, which owns 26.6 percent of Intu. Whittaker will become deputy chairman of Hammerson after the takeover.
Following the deal, the company will sell-off at least 2 billion-pounds of property to help bolster its balance sheet and Hammerson said it expects the tie-up to add to earnings in the first full financial year following closing.
It expects pretax benefits for the combined company to reach a run-rate of about 25 million pounds per annum by the end of the second year.
There will be a one-off integration cost of about 40 million pounds, Hammerson said.
Hammerson also said it expects dividend growth of the combined company to be at least in line with its historical dividend growth.
Deutsche Bank, JP Morgan Cazenove and Lazard are advising Hammerson, while Rothschild, Bank of America Merrill Lynch and UBS are working with Intu.
(Reporting by Arathy S Nair in Bengaluru; editing by Jason Neely and Jane Merriman)