Klépierre and Corio merge to create retail property giant

French REIT Klépierre and listed Dutch retail specialist Corio have agreed to merge their operations in a move which will create the second-largest listed retail company in Europe with gross assets of over €21 bn.

The tie-up will take the form of a share deal, with Klepierre taking over 100% of Corio’s ordinary shares. Major Corio shareholder APG has agreed to tender its 30.6% stake in the Euronext-listed company to Klépierre. Simon Property Group and BNP Paribas, Klépierre's largest shareholders with 29.4% and 21.7% respectively, support the proposed transaction, which is conditional upon the acquisition of at least 80% of Corio’s shares.

Under the terms of the deal announced on Tuesday, Corio shareholders will receive 1.14 Klépierre ordinary shares for each Corio ordinary share in a deal valuing Corio at €7.2 bn including debt. The exchange ratio represents a 15.6% premium on the closing price of €35.8 per Corio share on 28 July 2014.

In a conference call with analysts to detail the transaction, Klépierre’s CEO Laurent Morel said the companies are 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.

Number two player
With gross assets of €21.3 bn, the combined group 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.

‘Size is becoming an increasingly decisive factor in the retail property market in order to create attractive shareholder returns over the long term and being able to compete for larger high-performing retail properties,' added Gerard Groener, Corio CEO.

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.

Synergy effects
The transaction is expected to be immediately accretive, with expected run-rate synergies of €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 during the conference call 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.

‘This offer does not exclude a counter bid but we have strong support from shareholders on the two sides for this deal,’ he added.

Following closing of the deal, major shareholders APG and Simon will have a six-month lock-up period for their shares.