French firm goes shopping for UK's Hammerson

It's a common complaint among the bosses of top property companies that their shares are undervalued.

A lot of investors have been shunning the sector on the assumption that commercial property prices are set to fall.

That is particularly the case when it comes to investing in property companies specialising in shopping centres, since these are perceived as particularly challenged, due to competition from the internet.

Accordingly, in recent years, the market valuations of such companies have borne little relationship to the value of the buildings they own.

Take Hammerson, the UK's biggest shopping centre group, owner of the Bullring and Grand Central centres in Birmingham, Cabot Circus in Bristol, Centrale in Croydon and the UK's first shopping centre, Brent Cross in north London.

According to its latest results, its net asset value (NAV) per share - the book value of its assets divided by the number of shares in issue - stood at 776p as at the end of last year.

Yet its shares closed on Friday evening at just 437.1p - suggesting that investors are sceptical the company, if selling any of its properties, could raise the price at which they are valued in its books.

The shares are a good deal higher - 24% higher, to be precise - today.

Klepierre (LSE: 0F4I.L - news) , a French shopping centre operator, has confirmed a story in The Times that it has made a takeover approach to Hammerson (Frankfurt: 876140 - news) valuing it at £4.9bn. Hammerson has rejected the approach, calling it "wholly inadequate and entirely opportunistic".

And, given that the offer is pitched at 615p - a 20% discount to the latest NAV per share - it has a case.

Yet this is not an ordinary takeover situation.

In December last year, Hammerson announced plans to take over Intu Properties (LSE: INTU.L - news) , a major domestic rival whose shopping centres include the Trafford Centre near Manchester and the Lakeside Centre in Essex.

Intu (Swiss: OXIGTU.SW - news) , even more than Hammerson, had been suffering from a depressed share price. Its NAV per share was 411p at the end of 2017 yet its closing price on Friday evening was just 209.5p.

The ferocity of Hammerson's response reflects a sense of anger that Klepierre's approach could disrupt its tie-up with Intu.

Interestingly, though, the approach has also reinforced, in the eyes of some City sceptics, why Hammerson should not be joining forces with its rival.

The property analysts at stockbroker Peel Hunt are among those critics.

They argue that, by combining with Intu, Hammerson would be doubling down on UK shopping centres and making less relevant, to its overall fortunes, its assets in France and the Republic of Ireland (Other OTC: IRLD - news) .

In a note entitled "Wedding Crasher", the Peel Hunt team told their clients this morning: "The response from Hammerson sets out the (company's) portfolio's unique properties - many of which we believe would be diluted by the Intu transaction."

There is also an intriguing personal aspect to this intervention from Klepierre.

The French company's biggest shareholder is Simon Property (NYSE: SPG - news) , the US mall giant, which in 2011 sought to buy Intu which, in those days, was called Capital Property Centres. That deal was scuppered when, instead, Intu bought the Trafford Centre from billionaire investor John Whittaker.

That deal made Mr Whittaker the biggest single shareholder in Intu with a 27.2% stake. Mr Whittaker has been supportive of the Hammerson-Intu deal and is in line to become deputy chairman of the enlarged group.

Most sector-watchers suspect that, having seen Mr Whittaker disrupt a big deal of his, David Simon, the chairman and chief executive of Simon Property, is now returning the compliment.

In the meantime, the big winners are shareholders in Hammerson. Somewhat belatedly, the stock market is waking up to its attractions.