Shopping centre owner Hammerson has agreed to buy its smaller competitor Intu in a deal that will create the UK’s largest property company.
The combined firm will have a portfolio of retail and leisure destinations worth £21 billion.
Hammerson, which owns Birmingham’s Bullring shopping centre, is buying Manchester’s Trafford centre owner Intu for £3.4 billion.
Hammerson is hoping to tap into new, high-value markets such as those in growing economies like Ireland and Spain, while using extra cash to expand its Premium Outlets platform.
The new group will own 12 of the country’s 20 supermalls, including Birmingham’s Bullring, Manchester’s Arndale centre, Lakeside in Essex, the Metrocentre in Gateshead, as well as Bicester Village.
Hammerson also owns property in Ireland and France.
Hammerson chief executive David Atkins, who will lead the merged company, said the deal marks an exciting milestone in the history of the company.
“The acquisition creates a leading pan-European platform of desirable retail and leisure destinations which are better positioned to serve the needs of our retailers, excite our customers and support our partners and communities,” Atkins said.
John Strachan, chairman of Intu, said the deal would present an attractive proposition for retailers and shoppers in Europe’s leading cities.
“A combination of both Intu and Hammerson will create a more resilient, diversified and stronger group,” he added.
The merged group plans to sell at least £2 billion of assets to strengthen its balance sheet and allow it to reinvest in higher return opportunities.
Although the trend for online shopping has led retailers to close stores on the high street, many are focusing their portfolio in premium shopping centres, where rents and holding up or rising.
Jasper Lawler, head of research at London Capital Group, claimed the cost of living squeeze – caused by inflation outpacing wage growth – has forced companies such as Hammerson and Intu into action.
“Online shopping means shopping centres and high street shopping are in a long-term malaise,” he said. “Shareholders will want to see assets sold down in the merged company to help fund the deal and to reflect the lower demand for bricks and mortar stores.”
Sofie Willmott, senior retail analyst at GlobalData, said shoppers and retailers want to be in supermalls.
“As clothing and footwear retailers focus on supermalls to create large-scale, experience-led stores, physical retail spend will move away from town centres towards destination shopping centres, ensuring supermall space is hot property,” she explained.
The proposed deal will net the group a stake in almost 60% of all UK supermall space, making it a force in the retail landscape.
Hammerson said it expected the deal to generate £25 million of annual pre-tax savings by the end of the second year, as a result of lower office costs and by combining support functions such as IT and digital operations.
The deal would result in Hammerson shareholders owning about 55% of the enlarged company, with the remaining 45% owned by Intu shareholders.
DealMakerz thinks the merger demonstrates how tough the retail environment is becoming.
Big names like Marks & Spencer, Debenhams and Toys R Us have all announced plans to close stores.
But the most popular, top tier malls are thriving. Recently, Westfield revealed it was opening a third UK mall in Croydon.
Premium shopping centres are managing to attract customers with their wide range of eating and drinking establishments, entertainment offerings and top fashion brands.