London's FTSE 100 held steady near 10,430 late Wednesday morning, while the FTSE 250 edged up just 0.03% to 22,934. The property sector stole the spotlight as the FTSE 350 REIT index surged 6%, driven by a 16% jump in Segro shares following a takeover approach from US industrial giant Prologis.
Takeover Terms and Market Reaction
Prologis has proposed an all-share acquisition valuing Segro at £12.6 billion, or 925 pence per share based on Tuesday's close. This represents a 24.6% premium over Segro's last closing price of 742 pence. Under the terms, Segro shareholders would receive 0.084 new Prologis shares for each Segro share held, ultimately owning 10.5% of the combined entity. The offer price aligns with Segro's last reported EPRA net tangible assets per share, a key property valuation metric.
Segro's board has rejected the bid as significantly undervaluing the company, arguing that the timing exploits a pricing gap between US and European property markets. In morning trade, Segro shares were around 868 pence, roughly 6% below the bid's stated value, suggesting some investor skepticism about the deal's completion.
Index Implications and Tracker Fund Impact
Segro represents a staggering 20.35% of the FTSE EPRA Nareit UK REITs Index, according to FTSE Russell's May 29 factsheet. If the takeover succeeds and Segro is delisted, nearly one-fifth of the index would need to be replaced. This poses a significant challenge for tracker funds that mirror the benchmark. BlackRock's iShares UK Property UCITS ETF, with £456.2 million in assets as of June 23, would need to reallocate approximately £91 million across the remaining index constituents.
Stifel analyst John Cahill warned that Segro's removal 'would represent a serious challenge to the long-term viability of the UK listed property sector.' The REIT index has already seen a 6% surge this year, partly due to Segro's 15.6% gain, which alone could lift the benchmark by about 3.2 percentage points.
Financial Dynamics and Analyst Views
Prologis noted that Segro traded at an average 19% discount to asset value over the past two years, while its own net debt stands at 22% of enterprise value compared to Segro's 37%. This financial flexibility allows Prologis to offer a substantial premium without exceeding Segro's last reported asset value. However, the all-share nature of the deal means its sterling value will fluctuate with Prologis' share price and the pound-dollar exchange rate.
Analysts remain divided on the likelihood of a higher bid. Oli Creasey, head of property research at Quilter Cheviot, stated, 'In our view Prologis would be reluctant to increase the offer materially and take it above NAV.' Panmure Liberum's Bjorn Zietsman questioned whether the approach 'adequately compensates shareholders.' Prologis has until July 22 to make a firm offer or walk away. If the bid collapses, most of Segro's gains and some of the sector's recent move could evaporate.
