Colonial wins control of SFL

Inmobiliaria Colonial yesterday took a controlling stake in Société Foncière Lyonnaise. The Barcelona-based real estate company paid €759m ($917m), winning the contest to buy the last available big French property group.

Colonial said it would acquire 55.6 per cent of Paris-based SFL from its controlling shareholders, which include Aviva, Exor, Grosvenor and Société Générale.

The Spanish group said it would make a €38-per-share cash offer for the outstanding shares, valuing SFL at €1.64bn, including €262m of convertible bonds. The acquisition will more than double Colonial´s asset value to €5.1bn. Paris will account for 57 per cent of assets, with 25 per cent in Barcelona and 18 per cent in Madrid.

The deal will be fully financed through debt, increasing Colonial´s debt-to-assets ratio from 28 per cent to 63 per cent if all shares are tendered to its offer. Colonial said the leverage ratio would fall to 53 per cent within three years thanks to cashflow generation and asset disposals.

Property analysts said the increased leverage was not out of line for the sector but Colonial shares fell 4.6 per cent, closing at €20.40.

The group said SFL would have an immediate positive impact on earnings per share and cashflow and management would be asked to stay. The deal will give Colonial control of some of Paris´s most prestigious office and retail buildings, including Galerie des Champs-Elysées, Washington Plaza and the Louvre business centre.

Colonial, which is controlled by La Caixa, Spain´s largest savings bank, was excluded from consolidation in the Spanish property sector last year. It was rebuffed from taking part in a merger of Metrovacesa and Bami, which created Spain´s largest real estate group.

The sale of SFL attracted interest from US private equity groups Westbrook and Blackstone as well as rival property groups, including Metrovacesa and Zunino of Italy.

Analysts said SFL, with an average yield of 6.4 per cent, was not profitable enough to tempt private equity groups. But they said it was still attractive to property groups from Southern Europe, which faced falling residential income in their domestic markets.

Reform of the French tax code for property sales last year made it easier to sell assets, boosting real estate groups´ share prices and tempting several shareholders to sell out. This has led to Gecina acquiring French rival Simco and GE purchasing Sophia, the Paris-based property group.

Société Générale and UBS advised SFL´s shareholders, while Goldman Sachs and Jones Lang Lasalle advised Colonial.

SFL´s controlling shareholders agreed in February to sell their holdings after SFL lost to General Electric in a battle for Sophia last year.

Source: Financial Times

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