UPDATE 1-UK property firms L&S and Metric propose merger

Tue Nov 6, 2012 8:25am EST

By Brenda Goh

LONDON Nov 6 (Reuters) - British developer London & Stamford has agreed to take over Metric Property Investments, in a merger that analysts say could herald a wave of similar deals as smaller property firms join together to battle the financial crisis.

Shareholders in London & Stamford will own 75 percent of the enlarged company, the firms said on Tuesday, if the offer of 0.94 shares for every Metric share goes ahead. London & Stamford has until Dec. 4 to announce whether or not the offer will be made for Metric, which is valued at about 200 million pounds ($320 million) under the outline deal.

London & Stamford owns and develops offices and luxury homes in London as well as warehouses across Britain. Last month, it sold its stake in the Meadowhall shopping centre in Sheffield for 750 million pounds to Norway's sovereign wealth fund. Metric owns supermarkets and retail parks in Britain.

"It is exactly what the sector needs - consolidation," said Investec analyst Alan Carter. "There should be more mergers between the smaller companies but it is always easier said than done. The principle of this, if it was extended, would be welcomed by the sector," he said.

JP Morgan Cazenove analysts have also predicted more mergers among Europe's property companies, arguing such deals will help them cut debt and operating costs and enable them to expand despite the sluggish economy.

Other smaller property companies that could become takeover targets include office landlord Workspace Group, whose London focus could make it attractive, and Capital & Regional which has been involved in debt renegotiations, analysts said.

Larger property companies are able to borrow at lower rates than smaller competitors. Over the past two months, for instance, FTSE 100 company Hammerson sold 400 million pounds of bonds at 2.75 percent while smaller rival St Modwen paid 6.25 percent for an 80 million pound issue.

Jefferies analyst Mike Prew said mergers among smaller companies would also enable them to buy larger properties.

"There must be a lot of micro real estate companies at the moment who are beginning to think what's the point of being in the public real estate sector market as their shares are so lowly rated," he said.

Under the proposed deal London & Stamford chief executive Patrick Vaughan will become executive chairman of the combined group while Metric's chief executive, Andrew Jones, will become chief executive. Raymond Mould, London & Stamford's chairman, will retire from his current role.

The management teams of the two companies previously worked together at retail park developer Pillar Property, which was sold to British Land in 2005.

At 1315 GMT shares in Metric were up 10.75 percent at 103 pence while London & Stamford shares were 3.25 percent lower at 113 pence and the UK real estate sector index was up 0.4 percent.

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