Segro, the FTSE 100 warehouse landlord long known as Slough Estates, has said it is “minded to recommend” a £14bn offer from US giant Prologis of San Francisco. The “best and final” bid, worth £10.32 a share, means the two sides now have until 12 August to reach a firm agreement.
The takeover is the biggest Footsie deal so far in a bid-heavy year and, in several respects, one of the most disappointing. For a few hours on Wednesday, it appeared possible that the FTSE 100 company might resist a hostile US raider and ignore some of its own large shareholders in order to preserve its independence. That did not happen.
Why did Segro fight the bid?
Segro’s long-serving chief executive, David Sleath, mounted a credible defence and had the stronger arguments in the debate. Rather than selling at close to book value, which in this case was 905p, he urged shareholders to be patient and to consider the company’s growth prospects in AI datacentres and large warehouses for online retailers and similar businesses.
The company described itself as
“A unique portfolio focused on Europe’s most supply-constrained markets,”and said CBRE, the commercial property investment firm, estimated that Segro could be worth nearly £18bn, or £13 a share, within a few years on a standalone basis, helped by expansion in datacentres.
Prologis argued the opposite: that such valuations were unrealistic because Segro lacks the financial strength to fully exploit those opportunities. Its message to shareholders was essentially to take the money, or rather accept the share-swap terms after a cash element was added late in the process and now accounts for only 25% of the offer.
Why did shareholders push for engagement?
The 14% premium to the latest asset valuation was enough to attract support from some major investors. In recent days, pressure for
“engagement”had intensified, led by Norway’s sovereign wealth fund, which holds an 8% stake in Segro.
The pattern will be familiar to many UK market observers. Even when boards genuinely want to resist, institutional investors often end up determining the outcome.
In this case, the situation is even more frustrating because many of the investors urging a deal also hold Prologis shares. Prologis, which has a market capitalisation of $135bn (£101bn), is a far larger US real estate group. For international investors with stakes in both companies, the dispute over value and terms likely became little more than portfolio management on a spreadsheet, which hardly makes for a fair fight.
What does the deal mean for London’s property sector?
The second reason the deal feels disappointing is that London’s real estate sector now looks thinner. Segro is by far the largest listed commercial landlord and is meaningfully different from the rest of the market.
Panmure Liberum analyst Bjorn Zietsman recently wrote:
“Segro is one of a small number of listed, pure play vehicles offering direct exposure to UK and European datacentre and logistics development.
“If Segro is absorbed into Prologis, that exposure gets absorbed and the capital allocation decision behind it disappears. Investors lose the ability to choose UK/European datacentre and logistics growth specifically, and instead inherit whatever weighting Prologis’s management chooses to give the UK and Europe within a global platform spanning 20 countries and £200bn of combined assets under management.”
In practical terms, that means a little more diversity disappears from the London stock market, at least in property. There will still be plenty of real estate investment trusts offering the usual mix of London office blocks and regional shopping centres, but multi-decade pan-European opportunities tied to AI datacentres are much harder to find.
Prologis has promised a secondary listing in London, but that is unlikely to be much comfort. Experience shows that such add-on listings often fade over time because trading typically shifts to the US.
What does this say about the UK stock market?
The disappearance of a company that began life as the Slough Trading Company in 1920 may not register on the political radar in the UK. Even so, the takeover is another example of the hollowing-out of the UK stock market, which has become an easy target for overseas buyers able to offer richer valuations.
The reaction might be more muted if the price were exceptional. In Segro’s case, though, the terms look only middling if judged over the long term. The result could have been different. This is another bad loss for London.
“A unique portfolio focused on Europe’s most supply-constrained markets,”
“engagement”
“If Segro is absorbed into Prologis, that exposure gets absorbed and the capital allocation decision behind it disappears. Investors lose the ability to choose UK/European datacentre and logistics growth specifically, and instead inherit whatever weighting Prologis’s management chooses to give the UK and Europe within a global platform spanning 20 countries and £200bn of combined assets under management.”
Key Facts
- Segro has said it is “minded to recommend” Prologis’s “best and final” offer.
- The deal values Segro at £14bn, or £10.32 a share, with a cash element of 25%.
- The two sides have until 12 August to reach a firm agreement.
- Segro’s latest asset valuation was 905p, while CBRE estimated a near-£18bn valuation, or £13 a share, within a few years on a standalone basis.
- Prologis has a market capitalisation of $135bn (£101bn) and says it will seek a secondary listing in London.
