Warehouse and data centre operator SEGRO (LONG:SGRO) has turned down a third offer from Prologis (NYSE:PLD) valuing it at £13.5 billion. The US suitor insists its proposal represents ‘a compelling opportunity’ and has urged SEGRO shareholders to lobby the board.
Third attempt
The latest offer consists of 0.089 new Prologis shares with a partial cash alternative for 20% of the total consideration. Based on current share prices and the GBP/USD exchange rate, SEGRO shareholders would get roughly 993p per share.
That’s a 3.4% premium to the initial Prologis offer, which was pitched at a 25% premium to SEGRO’s underlying price. If the cash option is fully taken up, SEGRO investors would own 9.2% of the enlarged Prologis share capital. The US firm said it will look into a secondary London listing to improve liquidity if there is enough demand.
‘Unrealistic’ valuation
Prologis insists SEGRO’s investor presentation of 8 July paints an ‘unrealistic’ assessment of the value of the standalone business. It argues SEGRO’s 8% discount rate ‘understates both execution risk and cost of capital in relation to speculative, long-dated, often un-zoned and untenanted development projects’.
The US firm also points to the entitlement revocation at SEGRO’s Paris data center, which it says shows the powered land bank is ‘subject to material risk’ which is not factored into the company’s valuation exercise.
We said in June it was worth SEGRO shareholders sitting tight and waiting for an improved offer. We also said a price of around £10.25/share would be appropriate, but it seems Prologis is trying finesse a deal under £10.
At the end of the day, the US company is a credible buyer and has deep operating experience in SEGRO’s markets. We certainly can’t think of a UK property firm with the size or pockets deep enough to put up a rival bid, although we could be wrong.
It’s worth noting Prologis approached SEGRO in March 2024 with an all-share offer at 963p, a 7% premium to NAV. Had the board accepted, given Prologis’ superior share price performance SEGRO investors would be 36.5% better off today.
