Shopping centre owner Hammerson blames a tough UK retail property market for withdrawing its support to merge with Intu Properties, saying the deal is no longer in the best interests of shareholders. 

Late last year, London-listed Hammerson announced plans to buy its rival Intu in a deal that was expected to create a £21bn (€23.8bn) pan-European retail real estate investment trust (REIT).

The British owner of Birmingham’s Bullring shopping complex said Wednesday it is withdrawing its recommendation to Hammerson shareholders to vote in favour of the Intu acquisition.

A tie-up with Intu would have given the merged company a market capitalisation of around £3.4bn.

Hammerson explained that despite the company performing well in the first quarter of the year, the equity market’s perception of the broader UK retail property market has deteriorated since the start of the year.

Hammerson also said its decision was due to market concerns over the time it would take to complete the deal and “realise longer-term returns” from the acquisition.

Last week French shopping centre owner Klépierre pulled out of making a formal bid for Hammerson, despite sweetening its offer a few days earlier. This was after Hammerson said the increased bid only represented “a marginal increase to Klépierre’s unsolicited proposal of 615p” made last month, which the board had rejected unanimously.

APG Asset Management, which holds around a 7% stake in Hammerson, had said last week that it will vote against the Intu acquisition. The Dutch pension fund said it believed the proposed acquisition will “significantly dilute” Hammerson’s portfolio.

In Wednesday’s announcement, David Tyler, the chairman of Hammerson, said: “After careful consideration, the board has concluded it is no longer in the best interests of shareholders to carry out the Intu acquisition.

“In recent weeks, investors have told us they share our view of the exceptional quality of our portfolio and that they have great confidence in our management team. The board has complete conviction in Hammerson’s prospects as a standalone business as we pursue our plans for future growth.”

David Atkins, the chief executive of Hammerson, said: “It is clear that the heightened risks to the Intu acquisition now outweigh the longer-term benefits.

“We have a clear strategy that has delivered consistent, strong returns on a standalone basis and we look forward to updating the market in the near term on our plans to accelerate the delivery of further value for shareholders.”

Hammerson’s withdrawal of the recommendation alone will not terminate the agreement with Intu.

Unless Intu and the Panel on Takeovers and Mergers agree otherwise, Hammerson must convene a Hammerson shareholder meeting to consider the Intu acquisition.

Hammerson said its offer will lapse if its shareholders do not approve the acquisition at the meeting.