(The Wall Street Journal) LONDON — Heightened Brexit uncertainty is weighing on trans-Atlantic deal making, as a trio of global investors led by property giant Brookfield Property Group pulled a multibillion-dollar bid to take a British retailer private.
The investors on Thursday blamed economic uncertainty and “potential near-term volatility across markets” for their decision to abandon an offer to acquire the just under 70% they don’t already own in Intu Properties INTU +1.18% PLC, in a deal that would have valued the British company at £2.9bn ($3.7bn). The decision came after an unusually long negotiation period of nearly two months. The offer period had been extended three times.
A person familiar with the process said political uncertainty in the UK had derailed the deal over the last two weeks, particularly as questions grew over the possibility of the British Parliament scotching the proposed divorce deal for Britain to split from the European Union.
Companies generally favour buoyant equity markets and improving economic conditions to assume the integration and other risks that come with making multibillion-dollar acquisitions. But the Brookfield-led consortium faced the prospect of a no-deal Brexit triggering a sustained period of volatile equity and currency markets and an uncertain outlook for UK trade policies.
Real-estate firms have been among the most sensitive UK stocks to political induced volatility, and sold off sharply earlier this month when a spate of cabinet resignations led investors to question the future of the EU exit deal.
The collapse of the deal also shines a spotlight on the prospect of the sale of UK-based packaging company RPC Group PLC. to either Apollo Global Management or Bain Capital.
RPC, which has a market value of about £2.9bn has been in talks with both private-equity giants since September, but so far it has yet to complete a transaction. In London trading on Thursday, RPC’s shares were down about 4% to £7.14, a sign of investor worry that the collapse of the Intu deal could signal potential trouble for its possible takeout.
RPC didn’t respond to a request for comment.
Companies have had to contend with Brexit since the vote more than two years ago. During that time deal activity has thrived, signalling that factors such as technology disruption and a lack of growth prospects are pushing companies to make acquisitions despite the political uncertainty. The British pound has also weakened, making deals cheaper for foreign investors.
Indeed, total transaction value in the UK is up almost 78% this year, compared with the same period last year, to $437.3bn. The number of transactions is slightly higher at 3,001, according to Dealogic.
That said, a sharp slowdown has marked activity so far in the fourth quarter in the UK as deal value and volumes are down by almost 46%, and 19% respectively, according to Dealogic.
Brookfield teamed up on the bid for Intu with British billionaire John Whittaker’s Peel Group, which remains Intu’s largest shareholder, and Saudi investment conglomerate Olayan Group. It would have significantly expanded the companies’ footprint in the UK retail and property sectors.
Intu owns 17 shopping centres in Britain, including eight of the 20 best performers, and three in Spain. But the bet was always seen as risky amid a string of a string of high-profile failures in Britain including House of Fraser and BHS, as consumers increasingly favour the ease of online shopping over store visits.
Those deteriorating conditions pushed British property development and investment company Hammerson in April to abandon its own £3.4bn bid to buy Intu. Hammerson said at the time there was a disconnect between Intu’s share price and “the fundamental value of its business and prospects.”
Peel Group still owns 26.8% of Intu.
Shares in Intu fell as much as 38% in morning trading in London. The firm said in a statement: “Whilst market sentiment toward retail and retail property remains negative, Intu is confident of its commercial prospects.”
Write to Philip Georgiadis at [email protected] and Ben Dummett at [email protected]
