Amsterdam-listed Corio is the latest in a string of Dutch retail specialists to fall into foreign hands.
Amsterdam-listed Corio is the latest in a string of Dutch retail specialists to fall into foreign hands.
The Dutch listed sector has lost further ground following the takeover of retail specialist Corio by its larger French peer Klépierre. In 2010, Corio’s CEO Gerard Groener presented an ambitious plan together with Hans van Veggel, the founder and former chairman of Gouda-based and non-listed retail developer Multi Corporation, for an international shopping centre investment platform in continental Europe’s largest economy Germany. At the time, Corio acquired a package of German shopping centre projects as well as a number of assets in Spain for a sum of €1.3 bn. The move had the support of Corio’s majority shareholder, Dutch civil servants pension fund ABP.
Four years later, ABP is understood to have orchestrated Corio’s French takeover by selling its 30% stake in the Dutch company to Klépierre. US shopping centre giant Simon Property Group also played a key role in the background in its capacity as majority shareholder in the French listed giant. The move echoes the takeover of former Dutch listed heavyweight Rodamco, which was acquired by its French peer Unibail in 2007 to form the current combine Unibail-Rodamco. Meanwhile Multi has also fallen into foreign hands. Last year, the debt-laden developer was acquired by US private equity giant Blackstone.
If it goes ahead, the proposed merger of Klépierre and Corio will create the second-largest listed retail company in Europe with gross assets of over €21 bn. Market leader Unibail-Rodamco has €26.8 bn of shopping centre assets. Under the terms of the deal announced on 28 July, Klépierre will take over 100% of Corio’s ordinary shares in a deal valuing the company at €7.2 bn - including debt - and representing a 15.6% premium on Corio’s closing price of €35.8 on 28 July 2014.
While analysts have lauded the deal, for Corio’s management team led by Gerard Groener it marks the anti-climax of efforts to develop the company into an independent investment platform revolving around the strategy of ‘favorite meeting places’. But in terms of value enhancement, the strategy yielded too little and in combination with a significant debt burden, this made the company vulnerable to potential buyers with a different view on how to add value – and access to cheaper financing instruments.
Simon Property, which acquired a 29% stake in Klépierre in March 2012, has a good track record in improving the performance of the real estate companies it buys or participates in. An important trump card in this context is that Klépierre is able to finance its loans under better terms than Corio. That fact and the direct synergy effects form an attractive prospect for shareholders given the debt burden that Corio still carries.
In a conference call with analysts to detail the Corio takeover at end-July, Klépierre’s CEO Laurent Morel said the companies are also geographically complementary and share a culture for development and for successful projects. ‘Leveraging the retail focus, complementary footprint and shared strategic vision of both groups, we will be better positioned to further implement and accelerate the reshaping of our portfolios and seize new development opportunities,’ he commented.
SYNERGY EFFECTS
The transaction is expected to be immediately accretive, with cost savings put at €60 mln in the next three to five years, the two companies said in a statement. The offer launch is planned for the fourth quarter of 2014 with closing of the deal expected in early 2015. Klépierre’s Morel said that the operation was initiated by Klépierre and that the conditional agreement does not rule out the possibility of a counter bid. Both companies may terminate the merger protocol if a third party makes an offer which exceeds the exchange ratio by 3% (if fully in cash) and 6% (if fully in stock). In the event of a competing offer, Klépierre will however be given the opportunity to match such an offer. However, analysts have said that it is unlikely that another investor will bid for the company.
The proposed merger of the two retail specialists has met with generally positive comment from analysts. ‘The premium looks generous given the under-performance of Corio’s portfolio since 2012,’ commented Kai Klose, an analyst with private bank Berenberg in London. ‘We agree with the rationale for the deal, which is to increase the size of the pan-European shopping centre portfolio. Larger retailers in particular prefer to structure their expansion plans with preferred partners and expand into several areas.’
‘The deal was always goings to happen,’ JPMorgan Chase & Co. analysts wrote in a note to clients. ‘Corio has been a perennial takeover target.’
In a note accompanying a credit rating review, Moody’s pointed out that Corio has been slow to dispose of its underperforming smaller, mostly suburban shopping centres. ‘But,’ the rating agency said, ‘we expect this to accelerate after its merger with Klépierre.’
Moody’s said the move should also improve occupancy rates, which, at 94% in 2013, lag its peers Hammerson plc and Citycon which have rates of 97.7% and 95.7% respectively. ‘Higher occupancy rates will increase profitability and cash flow because Corio will not have to pay service charges on unoccupied properties.’
Corio has already sold nearly €640 mln of non-core assets to a variety of buyers since the start of 2013 to concentrate on owning and operating larger shopping centres – or Favorite Meeting Places - which are dominant in their catchment area. However, Dutch financial newspaper Het Financieele Dagblad reported analysts as saying that Corio’s restructuring programme will likely be accelerated under Klépierre’s ownership, noting that the new French parent will scrutinise each property to see whether it should be sold, upgraded or expanded. Klépierre itself has streamlined its portfolio significantly following the entry of Simon Property Group as a major shareholder in 2012.
Should the merger go ahead, Corio - like Rodamco before it - will also have to defer to Paris for decisions on its shopping centre portfolio. Indeed, it may have to look as far as Indianapolis where David Simon, the supervisory board chairman of Klépierre, is based. In any case, it is not unlikely that the takeover will have repercussions for the weight of Dutch retail in Klépierre’s overall portfolio. Following the acquisition of Rodamco in 2007, the company’s new French owners sold off several hundred million euros worth of non-strategic assets in the Netherlands.
Marianne Korteweg & Paul Wessels
Senior Editors PropertyEU
DEAL FACTFILE
New combine poised to become number two player
With gross assets of €21.3 bn, Klépierre-Corio will be the number two retail player in Europe after Unibail-Rodamco which has €26.8 bn of shopping centre assets. The deal will allow Klépierre to develop strong bases in three new countries (the Netherlands, Germany and Turkey), while reinforcing its positions in France, Italy and Iberia. Corio will be able to meet its strategic targets through the deal. The combined group will have a development pipeline of €3 bn and a market capitalisation of more than €10 bn. The merger partners said the proposed tie-up has the unanimous support of their management and supervisory boards. Assuming 100% of Corio shares are tendered, Simon Property Group, BNP Paribas and APG will respectively hold 18.5%, 13.7% and 13.6% of adjusted Klépierre shares after the offer.
The company will be managed by a four-strong executive board consisting of three Klépierre directors and one Corio representative. David Simon, supervisory board chairman of Klépierre, will chair the combined group. The companies said they will reveal the top manager ‘in due time’. Klepierre has 125 shopping centres in 13 European countries, against 57 shopping centres in seven countries for Corio. If successful, the new combine will manage 182 assets with a net rental income of over €1.2 bn and a loan to value of 40%. The new group will be the largest shopping centre owner in the Netherlands, Italy and the Nordics.
TOP 5 SHOPPING CENTRES
KLÉPIERRE: 125 shopping centres in 13 countries
* Créteil Soleil (France)
* Val d’Europe (France)
* Field’s (Denmark)
* Emporia (Sweden)
* Blagnac (France)
CORIO: 57 shopping centres in 7 countries
* Portia di Roma (Italy)
* Hoog Catharijne (Netherlands)
* Grand Littoral (France)
* Boulevard Berlin (Germany)
* Campania (Italy)