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London Rivals Enter Into Nearly $4B Merger Talks

LONDON-Two of central London's largest specialty property companies are talking about creating a euro 2.8-billion ($3.6-billion) operation, with an eye toward becoming a REIT.

By Anita Howarth | Updated on October 03, 2006

LONDON-Great Portland Estates has entered preliminary talks with its FTSE 250 rival, London Merchant Securities, about a merger that would value the new company at euro 2.8 billion ($3.6 billion). “GPE anticipates that any merger transaction would involve a share-for-share offer by GPE for London Merchant Securities,” the firm said in a statement.

A merger would enable the combined companies to convert to a REIT next year. On their own the two firms would struggle to convert because GPE has too high an exposure to development to meet trust rules, and LMS, which is controlled by the family of chief executive Robbert Rayne, would likely breach the shareholding rule, which says that no single investor can own more than 10% of a REIT’s shares. The Rayne family controls 40% of LMS. Analysts believe a merger between the two makes sense because both companies specialize in Central London property and need to build portfolios dramatically ahead of REIT conversion.

LMS, which is advised by NM Rothschild, has about euro 370.44 million ($471.9 million) of development projects under way and a further euro 1.5 billion ($1.9 billion) of projects in the pipeline. The firm recently spun off its private equity arm, Leo Capital, leaving it focused solely on property.

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