- American warehousing specialist bids for FTSE 100 firm in all-stock deal
- SEGRO rejects the offer
- Prologis may have to up its bid to win over the British firm’s board and shareholders
- Putative deal adds to the long list of takeovers in the UK real estate sector this decade
- Approach also represents the fifth live bid for a FTSE 100 member this year alone
“Pie-in-the-sky narratives and babble about index inclusion can help to carry share prices in the near term, but long-term investment returns are ultimately dictated by the valuation paid to access a share (or all) of a company’s profits, cash flow and assets, and in this context Prologis’ attempt to snap up SEGRO in an all-stock deal makes perfect sense,” says AJ Bell investment director Russ Mould.
“SEGRO’s share price swoon of the past three years or so is clearly catching Prologis’ attention, and the US firm is trying to pay barely one times book, or net asset value, for its target with shares that trade on more than twice that multiple.
Source: LSEG Refinitiv data
“Prologis is headquartered in San Francisco and may not be a big name over here in the UK, even if it has a high-profile media partner in the form of TV presenter and architect George Clarke and owns and manages nearly thirty logistics sites across London, the South East and Midlands. Tenants include Marks & Spencer, AstraZeneca and DHL, but for all of that Europe represents just 9% of the business, compared to 84% for the USA.
“However, it is listed on the New York Stock Exchange and comes with a stock market capitalisation of $135 billion. This represents 2.3 times the company’s audited shareholders’ funds, or net asset value, of $58 billion.
“By contrast, before the putative bid, SEGRO’s shares stood at an 18% discount to its last stated NAV per share of 905p, a figure which the company shows as 925p on an adjusted basis.
“Prologis’ possible all-stock offer is 0.084 of its shares for each SEGRO share. Its shares closed at $145.30 each in the USA on Tuesday and with a sterling-dollar cross rate of $1.32 the offer equates to 925p a share.
“That represents a small premium to stated book value and par relative to the adjusted NAV per share figure.
“That looks fairly generous in the current circumstances, given how the overall UK real estate sector trades on an average discount to NAV of 25%.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Based on LSEG share prices at 10:00 on Wednesday 24 June
“Worries over working from home, the relentless attack on physical retailers from online rivals, higher energy costs, tighter environmental regulations and higher interest rates and government bond yields have all worked against the Real Estate Investment Trust (REIT) sector, and its sub-components, to varying degrees this decade.
“Such concerns mean the FTSE 350 REIT index stands no higher than it did in late 2008 and at less than half the level at which it launched in late 2006.
Source: Company accounts, LSEG Refinitiv data
“The post-Great Financial Crisis recovery, when investors reached for reliable yield during an era of zero interest rates, is well and truly over, especially as gilt yields are rising – and rising.
“Investors seem to be giving up hope on the Bank of England cutting interest rates in 2026 and are even pricing in hikes in the headline cost of borrowing. Throw in fears over inflation, thanks to energy and oil prices, and worries over the trajectory of government borrowing under the current prime minister and chancellor, let alone potential new incumbents in numbers ten and eleven Downing Street, and gilt yields are on the rise.
Source: Company accounts, LSEG Refinitiv data
“The higher gilt yields go, the less attractive the dividend yields available from the REITs may look on a relative basis. The average forward dividend yield on the sector for 2026 is some 6.3%, according to consensus analysts’ forecasts. This is a premium to the 10-year gilt yield of 4.74%, but investors do not seem convinced that is sufficient compensation for the perceived risks associated with holding REITs’ stock and their business models, at least in the current economic and interest rate environment.
“However, Prologis’ tentative approach is clearly not enough to persuade SEGRO’s board to accept it. Management feels the approach undervalues the long-term value of its property portfolio, and its data centre sites in particular, given their importance to the artificial intelligence boom and the spending splurge on such sites by the so-called AI hyperscalers.
“Prologis now has until 22 July to make a firm offer or walk away, under UK takeover rules.
“A firm bid would represent the latest in a growing line of them for UK real estate plays, to suggest someone sees value in British brick and mortar.
Source: Company accounts
“The approach to SEGRO also represents the fifth ‘live’ bid for a member of the UK’s elite FTSE 100 index, after those for Beazley, Schroders, Intertek, and DCC. A sixth deal, Rio Tinto’s merger with Glencore, fell apart almost as soon as it became public.
“Including SEGRO, the average bid premium relative to the undisturbed share price is 37% across that quintet, to again, perhaps, suggest there is still value to be had amid UK big-cap stocks, even as the FTSE 100 trades only a fraction below February’s all-time high.”
