French shopping center REIT Klepierre S.A. (Euronext Paris: LI) announced July 29 that it plans to purchase Dutch retail property company Corio NV (Euronext Amsterdam: CORA) in a transaction valued at $9.7 billion.
The combined property portfolio of the two companies would encompass 182 shopping centers across 16 European nations with a pro-forma gross asset value of more than $28 billion. The companies generated a combined net rental income of more than $1.6 billion in 2013.
U.S. mall REIT Simon Property Group, Inc. (NYSE: SPG) is currently Klepierre’s largest shareholder, owning a stake of 29.4 percent in the French company. The deal would reduce Simon’s share of ownership in Klepierre to 18.5 percent.
The boards and major shareholders of both companies support the deal, Klepierre and Corio said. David Simon, the chairman and CEO of Simon Property Group who is currently the chairman of Klepierre’s supervisory board, would serve in the same capacity for the new company, according to the announcement.
Under the terms of the offer, Corio shareholders will receive 1.14 ordinary shares of Klepierre common stock for each Corio share, valuing Corio at $9.7 billion based on the July 28 closing share price of $55.53.
Laurent Morel, Klepierre chairman, said the transaction would create “the leading pan-European pure player retail property company, with an unrivaled footprint in Continental Europe.”
The new company expects to focus on areas with high demographic and income growth potential. At the same time, Klepierre and Corio said the company would work to boost retail traffic and rental growth by making changes to its tenant base. The combined company would also look to dispose of some non-core assets.
According to a research note by analysts at J.P. Morgan, although Klepierre is “paying up” for Corio under the terms of the transaction, “the rationale of this deal is crystal clear.” Corio has “cleaned up” its portfolio during the past few years, J.P. Morgan said. Meanwhile, the J.P. Morgan analysts noted that the Dutch retail landscape is improving. Klepierre can add value to the new company by transferring know-how and best practices, J.P. Morgan added.
“Synergies are the icing on the cake, making this deal attractive for both parties,” the J.P. Morgan analysts said.