RECOMMENDED CASH ACQUISITION
of
U AND I GROUP PLC
by
LS DEVELOPMENT HOLDINGS LIMITED
(a newly formed company indirectly owned by Land Securities Group PLC)
to be effected by means of a Scheme of Arrangement
under Part 26 of the Companies Act 2006
Summary and highlights
·The boards of directors of U and I Group PLC (“U+I”) and LS Development Holdings Limited (“Landsec Development”), a newly formed wholly-owned indirect subsidiary of Land Securities Group PLC (“Landsec”), are pleased to announce that they have reached agreement on the terms of a recommended all cash offer by Landsec Development for the entire issued, and to be issued, ordinary share capital of U+I (the “Acquisition”).
· Under the terms of the Acquisition, U+I Shareholders will be entitled to receive:
149 pence for each U+I Share
· The Acquisition values the entire issued and to be issued share capital of U+I at approximately £190 million on a fully diluted basis and the price of 149 pence per U+I Share represents a premium of approximately:
o 73 per cent. to the Closing Price of 86.0 pence per U+I Share on 29 October 2021 (being the last Business Day before the commencement of the Offer Period);
o 71 per cent. to the volume-weighted average price of 87.2 pence per U+I Share for the one-month period ended 29 October 2021 (being the last Business Day before the commencement of the Offer Period); and
o 70 per cent. to the volume-weighted average price of 87.8 pence per U+I Share for the three-month period ended 29 October 2021 (being the last Business Day before the commencement of the Offer Period).
·If, on or after the date of this announcement and before the Effective Date, any dividend, distribution or other return of capital or value is announced, declared, made or paid by U+I or becomes payable by U+I in respect of the U+I Shares, Landsec Development reserves the right to reduce the consideration payable under the terms of the Acquisition of the U+I Shares by an amount up to the amount of such dividend and/or distribution and/or other return of capital or value, in which case any reference in this announcement to the consideration payable under the terms of the Acquisition will be deemed to be a reference to the consideration as so reduced. Any exercise by Landsec Development of its rights referred to in this paragraph shall be the subject of an announcement and, for the avoidance of doubt, shall not be regarded as constituting any revision or variation of the terms of the Scheme or the Acquisition. In such circumstances, U+I Shareholders would be entitled to receive and retain any such dividend and/or other distribution and/or return of capital or value.
·It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
·The Scheme Document will contain a valuation in respect of U+I's property portfolio in accordance with Rule 29 of the Takeover Code.
Transaction overview
·The Acquisition is an all cash offer for U+I by Landsec Development, unanimously recommended by the U+I Directors.
·The Acquisition recognises the value from combining U+I's front-end development capabilities, placemaking skills and portfolio of core regeneration projects which require funding, with Landsec's development expertise and strong balance sheet.
·Landsec set out a strategy in October 2020 to recycle investment in order to drive growth and generate higher returns, including through urban opportunities in London and other major regional cities. The Acquisition accelerates that strategy, adding an attractive pipeline of mixed-use urban development opportunities along with complementary skills and expertise.
·U+I provides access to a significant pipeline of mixed-use development schemes, of which two are well-progressed through planning (Mayfield, Manchester (strategic regeneration framework (“SRF”) and detailed consent for phase 1); and Morden Wharf, Greenwich Peninsula (resolution to grant)) and in respect of which Landsec believes that it can accelerate the pace of development.
·U+I also provides access to a further high quality, office-led development in London (Landmark Court, Southwark) with planning consent.
·In addition, there is a strong alignment of cultures between the two companies, with a focus on developing sustainable communities in the interests of broader stakeholders.
Recommendation
·The U+I Directors, who have been so advised by Rothschild & Co as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing its advice to the U+I Directors, Rothschild & Co has taken into account the commercial assessments of the U+I Directors. Rothschild & Co is providing independent financial advice to the U+I Directors for the purposes of Rule 3 of the Takeover Code.
· Accordingly, the U+I Directors intend to recommend unanimously that U+I Shareholders vote in favour of the Scheme at the Court Meeting and the Resolution to be proposed at the General Meeting as the U+I Directors who hold U+I Shares have irrevocably undertaken to do in respect of their own beneficial holdings of 4,507,614 U+I Shares in aggregate, representing approximately 3.6 per cent. of U+I's issued share capital on 29 October 2021 (being the last Business Day before the date of this announcement).
Irrevocable undertakings and letters of intent
·In addition, Landsec and Landsec Development have received letters of intent to vote in favour of the resolutions relating to the Acquisition at the Meetings (or in the event that the Acquisition is implemented by a Takeover Offer, to accept such Takeover Offer) from Aberforth Partners LLP, J O Hambro Capital Management Limited, Jupiter Asset Management Limited and Ennismore Fund Management Limited, in respect of a total of 39,754,171 U+I Shares, representing in aggregate approximately 32 per cent. of the issued ordinary share capital of U+I on 29 October 2021 (being the last Business Day before the date of this announcement).
· In total, therefore, Landsec and Landsec Development have received irrevocable undertakings or letters of intent, including those irrevocable undertakings from the U+I Directors who own U+I Shares, in respect of, in aggregate, 44,261,785 U+I Shares, representing approximately 35 per cent. of the issued ordinary share capital of U+I on 29 October 2021 (being the last Business Day before the date of this announcement).
· Further details of these irrevocable undertakings and letters of intent are set out in Appendix 3 to this announcement.
Background to and reasons for the Recommendation
· In May 2021, U+I announced the first step of its “Reset, Prove, Grow” strategy, which followed the 100-day strategic review undertaken by U+I following the appointment of Richard Upton as CEO in January 2021. As part of the review, U+I reorganised its portfolio into three segments: (i) Core Regeneration assets; (ii) Non-Core Development and Trading assets (“Non-Core”); and (iii) Investment Portfolio assets, simplifying the business and providing greater clarity to shareholders on the strategy for each segment.
· In relation to the strategy for the Non-Core portfolio, in the six months to 30 September 2021, U+I has made good progress with Non-Core disposals, fully exiting three of its 35 Non-Core projects with further partial realisations being achieved from a number of other projects. The U+I Board is confident in U+I's ability to monetise the majority of the remaining Non-Core projects over the four-year timescale previously indicated, albeit these disposals are not without risk and, in some cases, require further capital spend ahead of monetisation. The U+I Board also recognises that there is a wide range of total net sale proceeds outcomes, as set out in May 2021, which is in part dependent on factors beyond U+I's control.
·In relation to the Core Regeneration business, demand for mixed-use urban environments where people can live, work and socialise has never been greater, and the U+I Board continues to believe that U+I is one of only a small number of companies with the skills, track-record and reputation to successfully deliver these types of projects. However, the scale of U+I's Core Regeneration pipeline and ambition, relative to the scale of U+I's own balance sheet and market capitalisation, means that one of the core tenets of U+I's regeneration strategy is the introduction of external capital partners into key projects.
·The U+I Board believes that U+I's Core Regeneration model, married to the right long-term capital, and aligned with the Government's focus on rebuilding economic growth and 'levelling up', is more relevant than ever and represents a highly attractive opportunity to create long term stakeholder value. In considering the right partner for a project, U+I seeks an appropriate combination of balance sheet strength and expertise in investing in long-term regeneration projects. The U+I Directors consider Landsec a highly credible partner for these projects, given its financial strength and long track-record of delivering complex projects. Furthermore, the U+I Directors see this partnership as providing an opportunity to accelerate the Core Regeneration business plan for the benefit of all U+I stakeholders.
·Landsec's initial proposal was received in September 2021 and the final Acquisition price followed from a period of negotiations with U+I.
·Against this backdrop, whilst the U+I Board remains confident in U+I's prospects as a standalone company as it continues to implement its revised strategy, following careful consideration, the U+I Board has concluded the Acquisition is in the best interests of U+I Shareholders. In reaching this conclusion, it has considered in particular the following:
o the range of risk-adjusted returns under U+I's revised strategy, in particular the range of net proceeds likely receivable from the Non-Core disposals net of U+I's recurring cost base, as compared with the certainty of the Acquisition price;
o the likely requirement over time to introduce funding partners into certain of U+I's Core Regeneration assets, in order for U+I to monetise its interest in these core projects and create distributable profits for U+I Shareholders;
o the complexity and cost of U+I's existing capital structure and the overall size of its balance sheet and market capitalisation, relative to the scale and opportunity of its pipeline;
o the Acquisition price of 149 pence represents a premium of approximately 73 per cent. to the Closing Price of 86.0 pence per U+I share on 29 October 2021 (being the last Business Day before the commencement of the Offer Period) and 70 per cent. to the volume-weighted average price of 87.8 pence per U+I Share for the three-month period ended 29 October 2021;
o that the Acquisition provides an opportunity for all U+I Shareholders to realise their interests in cash; and
o the impact of the Acquisition on all of U+I's stakeholders and the importance of U+I's assets to Landsec's future strategy.
Background to and reasons for the Acquisition
·In October 2020, Landsec set out its future growth strategy focused on three key areas: (i) Central London offices; (ii) major retail destinations; and (iii) urban opportunities in London and other major regional cities. The ultimate goal of this strategy is to accelerate growth through recycling capital into higher return opportunities and deliver for investors an attractive combination of income and growth driven returns.
·In the near term, Landsec's directors expect to increase portfolio recycling and are prepared to take, in a considered way, more operational risk to create value and drive returns for Landsec's shareholders.
· As Landsec increasingly allocates capital for growth, it is targeting the delivery of mid-to-high single digit returns on equity across the Landsec group, split broadly equally between income and growth.
·The Covid-19 pandemic has accelerated the blurring of lines between where people live, work and socialise. In response to this, mixed-use developments with a clear sense of place are becoming a more important part of the fabric of cities. The directors of Landsec believe it is well positioned with its existing development and asset management capabilities and balance sheet strength to create these places and achieve attractive risk-adjusted returns.
·The Acquisition would add core regeneration assets to Landsec's development pipeline, which Landsec believes it can help realise through the strength of its balance sheet, accelerating the delivery of Landsec's “Urban opportunities” strategic pillar.
·The Acquisition would also complement Landsec's existing development capabilities and enhance the group's placemaking skills. U+I aligns closely with Landsec's sustainability goals, including the design and development of new sustainable communities, working alongside local government, customers, communities and partners.
· U+I provides access to a significant pipeline of mixed-use development schemes, of which two are well-progressed through planning (Mayfield (SRF and detailed consent for phase 1) and Morden Wharf (resolution to grant)):
o Mayfield, Manchester. Mayfield is one of the UK's pre-eminent mixed-use regeneration projects, and works have already commenced onsite. It is a c. 24 acre site in Manchester city centre, adjacent to Manchester Piccadilly railway station, which comprises approximately 2 million sq. ft. of office, retail and leisure space and 1,500 new homes set around a 6.5 acre public park. This site is currently owned in a joint venture with Manchester City Council, Transport for Greater Manchester and London and Continental Railways (the “Mayfield JV”). U+I has a 50 per cent. share in the Mayfield JV and acts as development manager for the site.
o Morden Wharf, Greenwich Peninsula. U+I has a conditional development agreement with Morden College, a charitable trust with significant land holdings on the Greenwich Peninsula. U+I has achieved a resolution to grant planning consent for 1,500 new homes, 200,000 sq. ft. of warehouses and 50,000 sq. ft. of retail across this 19 acre site on the western edge of the Peninsula.
·U+I also provides access to a further high quality, office-led development in London with planning consent:
o Landmark Court, Southwark. Landmark Court is an office-led development site located within walking distance of London Bridge station and Borough underground station, with planning permission for 200,000 sq. ft. of offices, retail and workspace and 36 new homes. Landmark Court will sit in a joint venture (which is conditional on receipt of development funding) of subsidiaries of U+I and Transport for London (“TfL”), held 51:49 respectively. TfL and Network Rail are freeholders of the site, with a new 299-year lease now agreed for development.
·Landsec believes that it can accelerate the pace of development across these sites by combining Landsec's own development capabilities and the strength of its balance sheet, with U+I's placemaking skills, which emphasise: (i) unlocking overlooked, underestimated sites, (ii) community-led neighbourhood planning, and (iii) purposeful construction of mixed-use neighbourhoods, infrastructure and public spaces. Landsec believes these opportunities would enable it to invest a further £600-800 million in development capital expenditure in the short to medium term.
·U+I provides access to a longer dated mixed-use regeneration scheme (Cambridge Northern Fringe East), which Landsec's directors believe could provide additional upside for Landsec, subject to further assessment. U+I also provides access to one further mixed-use regeneration scheme (8 Albert Embankment).
Information on Landsec Development, Landsec and U+I
Landsec Development
·Landsec Development is a private limited company registered in England and Wales and incorporated on 20 October 2021. Landsec Development was formed for the purposes of the Acquisition and is an entity indirectly wholly-owned by Landsec. Landsec Development has not traded since its date of incorporation, nor has it entered into any obligations other than in connection with the Acquisition.
Landsec
· Landsec is one of the leading real estate development and investment companies in the United Kingdom. Founded in 1944 and headquartered in Victoria, London, Landsec is listed on the London Stock Exchange where it is a constituent of the FTSE 100 Index. Landsec has been a Real Estate Investment Trust (“REIT”) since the UK introduced REIT status in 2007.
·Landsec operates across four divisions: Central London, Regional Retail, Subscale sectors and Urban opportunities. The company owns and manages some of the most successful real estate assets across the United Kingdom. Its combined portfolio of retail, leisure, workspace and residential hubs is valued at £10.8 billion and spans 23.5 million sq. ft. (as at 31 March 2021). Landsec aims to lead the real estate industry in critical long-term issues: from diversity and community employment, to carbon reduction and climate resilience.
Information on U+I
·U+I is a property developer and investor focused on complex, mixed-use regeneration in London, Manchester and Dublin, creating socially and economically sustainable places where people can live, work and socialise. Headquartered in London and listed on the London Stock Exchange's Main Market, U+I employs 70 people across the United Kingdom. U+I began as Development Securities PLC and rebranded as U+I in 2015 following the acquisition of Cathedral Group (Holdings) Limited in 2014.
· As a result of U+I's strategic review, announced in May 2021, U+I's portfolio has been reorganised into three segments: Core Regeneration assets, Non-Core Development and Trading assets, and Investment Portfolio assets.
· The Core Regeneration assets segment (£58 million of gross asset value as at 31 March 2021 or 22 per cent. of the total U+I portfolio) comprises five major schemes which are mostly public-private partnerships to build on publicly-owned land. These five major schemes have a significant estimated gross development value of £6 billion. These mixed-use regeneration schemes are expected to deliver sustainable and consistent returns to U+I. U+I's “master developer” approach provides multiple routes to monetisation over the course of the project and can include: (i) land enablement profits from planning and placemaking, (ii) plot sales to specialists, (iii) development management fees, and (iv) shares of development profits and promotes. These projects, which often require no upfront land purchase, are the core of U+I's business and require expertise like U+I's to be successful.
·The Non-Core Development and Trading assets segment (£126 million of gross asset value as at 31 March 2021 or 47 per cent. of the total U+I portfolio) comprised 35 projects (as at 31 March 2021) which were previously described as public-private partnership / development or trading projects and which U+I intends to dispose of within the next four years. As at 31 March 2021, U+I estimated £90-160 million of net cash receipts from these projects from the disposal programme (net of estimated project spend).
·The Investment Portfolio assets segment (£85 million of gross asset value as at 31 March 2021 or 32 per cent. of the total U+I portfolio) is comprised of 15 income-generating assets (as at 31 March 2021) and is largely made up of commercial, retail, shopping centre or leisure assets that U+I acquired or developed. U+I believes the Investment Portfolio provides a potential future opportunity to recycle capital into core regeneration schemes.
·As at 31 March 2021, the total gross asset value across the Core Regeneration, Non-Core Development and Trading and Investment Portfolio asset segments was £269 million.
·For the 12 months ended 31 March 2021, U+I reported total assets of £427.0 million, total revenues of £45.8 million and losses before tax of £86.7 million. U+I reported a basic loss of 70.2 pence per U+I Share.
Timetable and Conditions
·It is intended that the Acquisition will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act (although Landsec Development reserves the right to effect the Acquisition by way of a Takeover Offer, subject to the consent of the Panel and the terms of the Co-operation Agreement).
· The terms of the Acquisition will be put to the Scheme Shareholders at the Court Meeting and to the U+I Shareholders at the General Meeting. In order to become Effective, the Scheme must be approved by a majority in number of Scheme Shareholders, present and voting (and entitled to vote) at the Court Meeting, whether in person or by proxy, representing 75 per cent. or more in value of the Scheme Shares held by those Scheme Shareholders (or the relevant class or classes thereof). In addition, at the General Meeting to implement the Scheme, the Resolution must be passed by U+I Shareholders representing at least 75 per cent. of the votes validly cast on the Resolution, whether in person or by proxy. The General Meeting will be held immediately after the Court Meeting.
· The Acquisition will be on the terms and subject to the Conditions set out in Appendix 1 and to be set out in the Scheme Document, which will also set out further details of the Acquisition. It is expected that the Scheme Document containing further information about the Acquisition and notices of the Meetings, together with the Forms of Proxy, will be published within 28 days of the date of this announcement (or such later date as may be agreed by Landsec Development and U+I with the consent of the Panel). An expected timetable of principal events will be included in the Scheme Document.
· The Acquisition is expected to become Effective in December 2021 or early 2022, subject to satisfaction (or, where applicable, waiver) of the Conditions and the further terms set out in Appendix 1.
Comments on the Acquisition
Commenting on the Acquisition, Mark Allan, Chief Executive Officer of Landsec, said:
·“Developing truly world-class mixed-use communities that inspire and create opportunity is more important than ever. The combination of Landsec and U+I is compelling and will help us accelerate our strategy, both by introducing exciting new Urban development opportunities and by further strengthening Landsec's front end development capabilities and placemaking skills. Landsec has tremendous potential and this transaction is an example of our ability to capitalise on our strengths and create future value for all of our stakeholders – investors, employees, communities and partners alike.”
Commenting on the Acquisition, Richard Upton, Chief Executive Officer of U+I, said:
·“This acquisition represents a compelling opportunity to bring together two companies with strong and clear complementary value systems. U+I's core portfolio of large, mixed-use regeneration schemes can now achieve its full potential with the capital, experience and market positioning that Landsec can provide. U+I's purpose to effect valuable social and economic changes through authentic, inclusive regeneration is an important proposition for Landsec and the wider industry. This acquisition demonstrates confidence in our highly skilled and valuable team and for our many joint venture partners. Our strategy to re-focus on what we do best has proved to be highly effective in capturing value for our existing shareholders and providing Landsec with an opportunity to unlock future value from our regeneration pipeline. We look forward to a hugely productive and exciting new future with Landsec.”
The above summary should be read in conjunction with, and is subject to, the full text of this announcement (including its Appendices). The Acquisition will be subject to the Conditions and other terms set out in Appendix 1 and to the full terms and conditions which will be set out in the Scheme Document. Appendix 2 contains bases and sources of certain information contained in this announcement. Details of irrevocable undertakings and letters of intent received are set out in Appendix 3. Certain terms used in this summary and this announcement are defined in Appendix 4.
There will be a virtual briefing for analysts and investors at 8.00 am today by Landsec. Information on how to access the live webcast can be found at www.landsec.com/acquisition. A recording of the webcast will be available at the same address by the end of the day.
Subject to certain restrictions, the recorded briefing and the accompanying slides will be available to all interested parties at www.uandiplc.com and www.landsec.com. Your attention is also drawn to the important information below.