Hammerson merger makes sense

The Investment Column

The leaked merger talks between Hammerson and MEPC were a surprise, but they make sense for a number of reasons. An enlarged group would jump into the FTSE index, attracting tracker funds, provide some geographical diversity and give Hammerson the cash flow to fund its ambitious development programme. A bid would be a well-timed opportunistic attempt to take advantage of MEPC's perceived current difficulties.

MEPC's shares rose 7.5p to 485p yesterday as the market treated with a pinch of salt the official statement that discussions were over and focused on Hammerson's refusal to rule out a hostile bid for its larger rival.

Attempts can be expected from both sides to highlight differences over the next few weeks, but really there are remarkable similarities between the companies. Both expanded overseas in the hope of ironing out the property cycle at home. Both failed to do so and suffered in the industry slump that followed the late 1980s boom. Both have had a degree of success in digging themselves out of that self-inflicted hole.

The two companies are perceived in contrasting lights in the City, however, thanks to one fundamental difference. At MEPC, James Tuckey, who was instrumental in disastrous developments such as London's Alban Gate, is still in place. Hammerson has benefited from the appointment of former Greycoat man Ron Spinney.

Hammerson is the sector's delinquent son who has seen the light and mended his ways. Its decision to rein in its sprawling world-wide portfolio, while retaining some exposure to the troubled (but hopefully recovering) European markets, has been praised. It has also taken the current sector bull run by the horns and rolled out an ambitious expansion programme.

MEPC, by contrast, has proceeded with the caution of a company that burnt its shareholders' fingers so badly last time round that this time it is taking no chances. It has sold out of Europe, arguably at the wrong end of the cycle, and focused on the US retail market, where competition is stiff.

Selling smaller high-yielding buildings in favour of lower-yielding, but higher-growth, large properties is the right thing to do but it will hit income in the short term, leaving little scope to raise the dividend which has been pegged at 20p throughout the 1990s.

As this column pointed out after Hammerson's figures, the company is as well placed as any to benefit from the improvement in the property market, but its shares, at 431.5p, already factor in much of the good news.

MEPC, with its shares trading at about forecast net asset value for this September's year end, also looks fully valued with only fairly weak support from a gross yield of 5.1 per cent. While a bid remains a possibility, however, the shares are worth holding.

Liberty gets rid of another distraction

Liberty's decision to sell its half stake in the "no-brand" Muji stores to its Japanese joint-venture partner, Ryohin Keikaku, is hardly a surprise.

The new Liberty management team led by chairman Denis Cassidy and chief executive Ian Thomson has a stated strategy to concentrate on the group's flagship store in London's Regent Street as well its airport shops business.

The regional branches were closed last year while the board is dreaming up ways of expanding the Regent Street store by freeing up space currently occupied by wood-panelled corridors and dark, dusty rooms lined with Liberty family portraits.

Mr Thomson believes that there is an estimated 45,000 to 50,000 square feet of additional retail space that can be freed up.

There will be a little more as a result of the Muji deal because Liberty is reclaiming the main outlet in Great Marlborough Street, creating an additional 3,000 square feet for the Regent street store.

The pounds 1.25m price tag may not look much but it was probably the right time to sell.

Since it first started trading five or six years ago, Muji has only just started making profits, with a pre-exceptional figure of pounds 110,000 on sales of pounds 4m last year.

Last year's figure was turned into a pounds 116,000 loss after exceptional items such as the closure of the Glasgow branch.

Liberty shares have come off quite a bit since their 440p level at the beginning of the year and fell a further 2.5p to 367.5p yesterday.

With full-year results due later this month there are no forecasts available for what is a small company with a dominant 44 per cent stake held by the Stewart-Liberty company.

This may seem a deterrent, as might the company's exorbitant rating based on recovery prospects.

But the new management has delivered on its promises so far and Bryan Myerson, the South African rebel shareholder of UK Active Value fame, holds a 17 per cent stake and would like to buy the family out. Mr Myerson is supportive of the new management's strategy. Shareholders should do the same and hold on.

Capita tripped up by profit-takers

Capita, the management services group that has grown by snapping up outsourced contracts to administer pension funds or collect debts, and also operates the nursery vouchers scheme, had the dubious distinction of falling further in percentage terms than any other of the top 250 companies yesterday morning. By midday it had fallen 75p to 630p, and that on top of a 17.5p fall last Thursday.

It is tempting to see the slump as political, a response to the continuing failure of the Government to make any real progress in reducing the Labour party's mountainous lead in the opinion polls. But whatever backwoods investors might think, the City has long since convinced itself that a New Labour government will of necessity be as keen on cost saving as the Conservatives.

And as managing director Paul Pindar says, 38 per cent of the group's business is with local authorities, the vast majority of which are already Labour or Lib Dem controlled.

In any market shake-out, shares which have risen most become vulnerable to profit-taking. Capita shares had doubled between last October and the recent peak of 825p and were inevitably at risk when investors were looking to lock in profits in case of a substantial market correction.

In fact the steep fall in the shares during the morning was driven by a very low volume. The largest single transaction was 7,000 shares, which suggests that there was no institutional selling at all. The shares yield just 1 per cent, but the group is cash-rich and analysts are not changing their forecasts for the current year. If the UK follows the US, where 2.5 per cent of the labour force now works in call centres responding to customer enquiries, outsourcing has a long way to go.

That is the good news. The bad is that, down 58p on the day at 647p, the shares now trade on almost 40 times forecast earnings, which leaves little room for error.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
News
news
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
PROMOTED VIDEO
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Java Developer - Banking - London - Up to £560/day

£500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

HR Business Analyst, Bristol, £350-400pd

£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on