- LondonMetric and LXi will combine to create £6.4bn trust
- Deal will provide "better access to capital through greater scale"
LondonMetric (LMP) will take over LXi (LXI) in an all-share merger to create the UK's fourth largest real estate investment trust (Reit), the boards of both companies have agreed.
Under the terms of the deal, LondonMetric will buy LXI for £1.9bn, representing a 9 per cent premium on LXi's closing price before news of the deal emerged last month.
The merger creates a combined company worth approximately £6.4bn, which is large enough to immediately join the FTSE 100 and challenge the existing property Reit duopoly, where British Land (BLND) and Landsec (LAND) are by far the biggest players.
"Over the last two years interest rates have risen to levels not seen since before the global financial crisis, with very significant implications for property and capital markets," said the LXi board. "While the full impact will take time to materialise, it is clear that UK Reits must work harder than ever to offer differentiated investment propositions that are attuned to the current macroeconomic environment and appeal to a broad array of investors and lenders."
Existing LondonMetric shareholders will hold approximately 54 per cent of the combined company. LXI investors will receive 0.55 new LondonMetric shares for each LXI share held. LXi shareholders will still receive the third quarter dividend, which will be paid next month. Dividends will continue to be paid out until the deal completes.
The deal is not without controversy as it would also see LondonMetric take over the management of LXI’s property portfolio from its existing external manager, Tandem Property Asset Management, which currently runs 351 of LXI’s commercial and residential properties in the UK and northern Germany. For example, CBRE argues that the use of an external manager can mitigate risk by having flexibility to move capital between assets, as well as saving money and capacity on internal management.
"The merger terms imply the acquisition is at a 4 per cent discount based on the prevailing net tangible assets (NTA) of both companies, which to us is a balanced set of terms for shareholders of both respective entities," said John Cahill, real estate analyst at Stifel.
The terms are subject to a shareholder meeting likely to be held next month.
