Warehouse giant’s UK raid is cheaper than it looks
BREAKINGVIEWS-Warehouse giant’s UK raid is cheaper than it looks The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Yawen Chen
LONDON, June 24 (Reuters Breakingviews) - Prologis’ PLD.N £13 billion approach for Segro SGRO.L looks fuller than it is. The all-stock proposal values the UK warehouse landlord at 925 pence a share, a 24.6% premium to the undisturbed price. And it matches Segro’s last reported book value. In a depressed London market where property takeovers have been struck below net asset value, that looks fair. It is still not much of a price for one of Britain’s few listed real estate businesses with any growth.
For Segro, book value is only a snapshot. The company owns scarce urban logistics land, sites around transport and power hubs, and a growing data centre business centred on Slough, Europe’s largest cluster. The appeal is not just the land itself, but the power and planning already attached to it. Grid-connected sites in places like Slough and Park Royal are hard to replicate, and can be let out even before construction is finished, in turn pushing up the value of Segro’s assets.
Prologis has a point. Segro’s data centre operations are still small relative to its roughly £19 billion portfolio, accounting for 7% of rent. Building out the opportunity will take time and capital. Segro is carrying net debt of 8.4 times EBITDA, perhaps why management has made clear that growth will need to be funded through disposals or joint ventures. There’s little doubt Prologis, worth $135 billion, could build the data centres more quickly.
That still does not make its 925 pence all-share offer generous. Segro says it has more than 2.5 gigawatts of data centre capacity, with 1.1 GW available to pre-let by 2028. Its Park Royal joint venture offers a guide to the economics: a 56 megawatt London project with roughly £1 billion of gross capex and a 9% to 10% yield on cost, would imply annual rental income of about £95 million, according to Breakingviews calculations using company numbers. Shore Capital estimates that Segro’s revenue could rise by £500 million in coming years as pipeline assets are let out, a meaningful uplift on last year’s £726 million. Berenberg, meanwhile, reckons the London group’s net asset value will be above the 925 pence per share value of Prologis' offer by the end of this year, and grow rapidly after that.
That all suggests Prologis CEO Dan Letter can afford to pay more, even before factoring in the extra value he could create from cost savings. Blackstone BX.N, for example offered a 40% premium for the smaller Industrials REIT in 2023. He will also need to persuade Segro shareholders to take his stock, which is both U.S.-listed, and richly valued. True, Segro’s defence options look limited: there are few rival players in London big enough to act as a white knight. If Letter does dig deeper, he may yet prevail.
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CONTEXT NEWS
Prologis said on June 26 warehouse landlord Segro rejected its £12.6 billion ($16.62 billion) all-share takeover proposal and urged shareholders to press the British firm's board to engage with the U.S. logistics firm.
Prologis argued the FTSE 100 firm has traded at a persistent discount to its net asset value and faces structural constraints including balance sheet limitations that prevent it from unlocking value in its development and AI data centre pipeline.
Under the terms of the proposed combination, Segro shareholders would have received 0.084 new Prologis shares for each share they held, implying a value of 925 pence apiece — a 24.7% premium to Segro's closing price on June 23.
The company has until July 22 to unveil a firm offer for Segro or walk away, under British takeover rules.
Segro’s stock rose 15% to 856 pence as of 0840 GMT on June 24.
(Editing by Neil Unmack; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on CHEN/yawen.chen@thomsonreuters.com))