SEGRO rejects Prologis takeover proposal as board seeks higher value

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SEGRO rejects Prologis takeover

Highlights

SEGRO rejected Prologis's July 17 revised proposal of 0.0890 new shares per SEGRO share plus up to £2.7 billion cash, valuing SEGRO at 993 pence per share.
SEGRO's board argues the offer undervalues its growth prospects, noting the deal would transfer embedded value to Prologis shareholders ahead of potential earnings upside.
Prologis's earlier March 2024 bid represented only a 10% premium but would have been a discount by July due to SEGRO's share price outperformance and premium to net asset value.

Revised offer terms and board response

As reported by London Stock Exchange, citing London Stock Exchange Regulatory News Service, SEGRO says Prologis submitted a further revised indicative proposal on July 17 for all issued and to be issued share capital of the company, offering 0.0890 new Prologis shares for each SEGRO share plus a partial cash alternative of up to 2.7 billion pounds, equal to 20% of the total consideration.

Based on Prologis's closing share price of $149.8 and a GBP:USD exchange rate of 1.35 at the July 17 market close, SEGRO says the proposal values each of its shares at 993 pence if all shareholders elect fully for the cash alternative, or 958 pence using Prologis's three-month volume weighted average share price. The proposal follows earlier private approaches at exchange ratios of 0.0840 and then 0.0875 Prologis shares for each SEGRO share.

SEGRO says its board reviewed the latest proposal with advisers and unanimously rejected it, arguing that the company’s growth strategy and standalone outlook offer greater value creation. The company adds that it met Prologis management yesterday to test whether better financial terms could be offered, but says no new information was provided and no improvement was made.

Chairman Andy Harrison says the board does not believe Prologis's latest proposal reflects the quality, scarcity or long-term prospects of SEGRO's portfolio and platform. He adds that the board will engage further on any proposal that appropriately reflects the embedded value and prospects of the business.

Shareholder engagement and sector implications

SEGRO also says Prologis made an unsolicited proposal in March 2024, which the board unanimously rejected because it implied only a 10% premium to the prevailing share price and did not recognize the company’s standalone prospects. The company says that by July 2024, after a period of relative outperformance, that earlier proposal would have translated into a discount to SEGRO's prevailing share price, which was then trading at a premium to net asset value.

The board argues that Prologis's approaches are opportunistically timed to take advantage of a dislocated share price just as SEGRO's markets are inflecting and momentum is accelerating. In the board’s view, a deal on the current terms would shift the benefit of SEGRO's embedded value and operational progress to Prologis shareholders before that value is fully reflected in SEGRO's earnings and valuation.

SEGRO says it has been engaging extensively with shareholders as it forms its position and will continue to do so. The company says it will make a further announcement later on July 20 and is urging shareholders to take no action regarding Prologis's revised proposal.

Our earlier coverage of Prologis’s third takeover approach for SEGRO explained that the indicative offer valued SEGRO at about 993p per share, largely in Prologis stock with a 20% cash component. We noted that SEGRO rejected the proposal as undervaluing its portfolio and growth prospects, with both sides remaining far apart on valuation against a backdrop of heightened UK deal activity driven by relatively low market valuations.

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