Brixton agrees to rescue bid from rival property group

Deal offers a solution to warehousing specialist's long-running cash problems
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The Independent Online

The board of the commercial property group Brixton yesterday accepted an all-shares bid from its rival Segro in a deal that the company hopes will enable it to finally overcome its financing difficulties.

Segro, the FTSE 250-listed industrial developer and investor, will offer 1.75 of its shares for each Brixton share, which values the company at £107m, or 39.4p a share. Brixton's shares fell by 30.4 per cent yesterday to take account of the discount to Friday's closing price of 62.5p. Segro will also raise £250m through a rights issue.

Brixton, which has a total £876m of debt, has been looking at ways of refinancing its borrowing in recent months, as well as renegotiating covenant terms with its bank lenders, after being hit by the savage downturn in the property market. The company's shares are down 76 per cent in the last 12 months, despite a surge of 184 per cent in the last quarter, during which the company has said it has been talking to a number of suitors about potential offers. Brixton made a loss of £768.8m last year.

While a number of Brixton investors may feel that Segro is getting the company on the cheap, analysts yesterday suggested that the offer may be the only one to materialise.

"Several private equity names have been mooted as potential bidders for Brixton, but today's statement would seem to confirm that Segro offers the most deliverable and attractive offer currently on the table," said Michael Burt of brokerage group Noble.

"There is a definite appeal in the offer progressing from Brixton bondholders' perspective, given Segro's stronger financial position and its ability to raise the equity needed to potentially meet Brixton's upcoming debt maturities."

Mr Burt said Brixton had been paralysed by an inability to raise equity and the illiquidity of its underlying assets. The pricing of yesterday's offer leaves little for Brixton shareholders, but "with the alternative being potential equity holder wipe-out in the event of impending bank or bond covenant breaches, the opportunity to participate in any future upside through Segro paper is likely to be the best offer on the table".

Despite Mr Burt's assertion that Brixton's bondholders would be happy with the deal, one group, which so far has refused to identify itself, says the combined group will require more capital that Segro is proposing.

"We have strong concerns over the weakness of the combined Segro / Brixton balance sheet and the values attributed to Brixton portfolio," it said in an emailed statement. "We believe Segro will need to put at least twice as much capital as it is proposing into the business just to shore up the finances."

Segro has reserved the right to alter the terms of the deal and there is no certainty it will be completed.

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