Unibail Holding has agreed to make a bid for Rodamco Europe, creating a property company with a combined portfolio of about 22 billion euros ($29.4 billion), the two firms said on Tuesday.
Unibail will offer 0.53 of its common shares for each Rodamco common share, valuing Rodamco at 122.38 euros per share, or 11 billion euros, at current share prices.
Rodamco shares rose 10.9% to 120.26 euros in Amsterdam, while Unibail shares fell 2% to 230.90 euros. Other Dutch property stocks, such as Wereldhave and Corio, rose in the wake of the deal.
"It's a good deal but expensive," Petercam analyst Stephan van Weeren said, adding the deal offered one of the few opportunities for Unibail to boost its pan-European coverage.
Van Weeren said while a 15% premium on Rodamco's closing share price was "really hefty", he had previously considered Rodamco undervalued.
"If you look at the real value of the company, you arrive at a 10% premium, which is line with recent deals," he said.
Dutch broker Kempen said in a note that based on its estimates for 2008 and beyond, the transaction would be dilutive on a net asset value basis.
"Although the transaction would provide longer-term growth potential for Unibail, we lower our rating on Unibail from Add to Neutral," Kempen said.
"Merger of Equals"
The two companies billed the offer as a "merger of equals".
Unibail Chief Executive Guillaume Poitrinal, who will also lead the merged company, told a conference call there was a "perfect fit" with Rodamco as both companies had targeted the same quality of assets in the past 15-to-20 years.
While Rodamco Europe focused on retail properties and is diversified geographically, Unibail focused on France and spread out across different sectors.
"The total retail focus adds up to 73%, and we have agreed that the total focus of the group should be at least 75%," said Rodamco Europe Chief Executive Maarten Hulshoff, who will leave the company when the deal is completed.
Hulshoff said about 60% of the merged company's business will be in France, but the parties had agreed that in the future no country should make up more than 50 percent of the portfolio.
"I assume that will come from a more rapid growth outside of France," Hulshoff said.
The companies said the merger would create significant synergies that should increase net rental income by 40 million euros to 65 million euros annually by 2012.
PGGM, Rodamco's largest shareholder, with about 25% of the outstanding shares, has expressed its support, the companies said.
The supervisory and management boards of Rodamco supported the offer, with the exception of Terry Dornbush, who abstained from voting and resigned from the supervisory board, Rodamco said.
According to the agreement, the merged company's registered office will be in Paris, and international headquarters operations will be based in the Netherlands. It will have its primary listing in Paris and a secondary listing in Amsterdam.
The companies said the combined supervisory board will comprise five Rodamco members, five Unibail members and two independent members. Robert van Oordt, Rodamco's current supervisory board chairman, will be chairman of the combined supervisory board. The combined management board will contain three Rodamco members and three Unibail members.