Dundrum Town Centre Owner Hammerson is pulling out of buying smaller rival Intu Properties by asking its increasingly sceptical shareholders not to back the planned £3.4 billion ($4.8 billion) deal.
The owner of Birmingham's Bullring and London's Brent Cross said on Wednesday its board had withdrawn its recommendation that shareholders support the takeover due to heightened concerns about the British retail sector.
The British shopping centre operator's announcement lifted its shares by 4.5% to 516 pence, but Intu's fell 3.2%. Shareholders had become concerned the deal would increase Hammerson's exposure to British retail, which is facing weak consumer demand.
French rival Klepierre added to the uncertainty by bidding last month for Hammerson, which also owns Bristol's Cabot Circus and a stake in the Bicester Village retail outlet.
Paris-based Klepierre made its approach after Hammerson's shares slumped in the months following the announcement of the Intu deal in December. It wanted to buy Hammerson without Intu.
Klepierre raised its offer to £5 billion ($7.15 billion) last week but then abandoned it on Friday, saying Hammerson had not provided "meaningful engagement".
Several retailers and restaurants, including electronics business Maplin and burger chain Byron, have either fallen into administration or been forced to agree restructuring plans with their creditors in recent months.
"Whilst Hammerson has proven its portfolio is well positioned to weather the current environment, the equity market now perceives a heightened level of risk associated with the UK retail property sector as a whole," it said in a statement.
Intu said the explanations given by Hammerson for withdrawing its recommendation were "unsatisfactory".
David Fischel, Intu's chief executive said: "We're confident of our future, confident of our prospects, and we've got a very high quality business."
Hammerson chairman David Tyler told Reuters that its shareholders had been "very supportive" of the decision.
"I'm not considering stepping down and the board has 100 percent confidence in David Atkins as chief executive and his senior management team," he said.
Line In Sand
Concern over the Intu deal has grown since Hammerson spurned Klepierre's approach. On the same day that Klepierre walked away, Dutch pension fund APG, one of Hammerson's biggest shareholders, said it would oppose the Intu takeover.
Another top ten Hammerson investor told Reuters on Wednesday that Klepierre's improved but rejected bid of 635 pence per share had drawn a line in the sand for the British company's management to match or better by finding other ways to boost value for shareholders.
Under British rules Klepierre cannot revive its approach for at least six months, unless Hammerson invites it back sooner, another suitor makes a bid, or there is a material change.
But Tyler said it was "exceedingly unlikely" that Hammerson would open the door to the French firm.
"Their ability to pay the sort of price that we think shareholders would be interested in is very constrained if you look at the Klepierre balance sheet," he said.
J O Hambro Capital Management, a top 20 Hammerson investor, praised its board "for taking the difficult decision".
For the Intu takeover to proceed, shareholders in both companies must vote on it at separate meetings. However, Hammerson said it would not hold its investor meeting if Intu and Britain's Takeover Panel agree.
The withdrawal of the board recommendation alone will not cause Hammerson's offer to lapse and Intu said its board will convene to consider Hammerson's request to abandon a vote.
Hammerson said it was confident of its prospects as a standalone business and was reviewing options including selling sites, investing in its premium outlets, and returning cash to shareholders.
"Hammerson, on a standalone basis, should be in a stronger position to allocate capital to its faster growing markets, such as premium outlets," analysts at Liberum said.
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