Bunnings landlord, BWP (ASX:BWP), is set to acquire its smaller rival, Newmark Property (ASX:NPR), in a $247 million deal, exceeding Newmark’s Tuesday valuation by over 40%.
Newmark Property counts Bunnings, Officeworks, and Kmart among its tenants, all Wesfarmers chains, and had a market value just above $175 million on Tuesday’s close.
Both entities announced an all-scrip merger on Wednesday, representing one of the highest premiums ever for a REIT—a 43.1% premium for Newmark Property securities.
NPR securities closed Tuesday at 97 cents, with BWP offering 0.4% of a BWP security for NPR, valuing it at $1.39 a security based on BWP’s Tuesday closing price of $3.47.
Despite its generosity, this offer falls below the highest price for Newmark securities in the past year, which reached $1.50.
The deal aims to unite Bunnings’ two major landlords, with BWP already securing an 18% stake in Newmark, making the offer unblockable with a 50.01% acceptance level.
Analysts attribute the deal to high-interest rates, forcing property trusts to write down the book values of key assets, including retail malls, shops, office towers, and industrial and commercial warehouses.
The acquisition may have been prompted by a significant drop in the book value of Newmark’s Melbourne Bunnings store, which plummeted by 10% in just six months in early 2023.
In August, Newmark devalued its flagship Bunnings store in Melbourne by nearly 10%, hinted at further asset sales, and reduced its distribution by 16%.
Newmark security holders will own approximately 10% of the merged entity once the deal is finalized. Wesfarmers, which owns about 25% of BWP and spun it out in the late 1990s, slightly reduced its stake but supports the merger.
The combined company will boast assets worth $3.5 billion and a market cap of around $2.5 billion.
As the merger unfolds, analysts, investors, and fund managers will be closely watching for potential consolidation among depressed REITs and their sponsor companies.