Just how good is the biggest transfer deal of the summer?

When you’re running a good Premier League football club and excited about the coming season but, suddenly, Real Madrid approach you to buy your star player, nine times out of 10 you have to bow to the inevitable and sell. Your responsibility then is to extract the most cash you can from Real Madrid.

The same analogy can be applied to SEGRO and Prologis, the Real Madrid of the logistics real estate world. When we first learned on 24 June that Prologis wanted to buy SEGRO, it appeared inevitable that it would succeed; the only uncertainty was the price. After rejecting Prologis’ first three offers, the SEGRO board accepted the fourth on 4 August – and observers congratulated them for driving a hard bargain.

But that may not be the case for one simple reason – while the football club received a fixed amount of cash from Real Madrid for their star player, SEGRO’s owners/shareholders are receiving Prologis shares for the most part and not a fixed amount of cash. So the value of the bid depends on Prologis’s share price and the dollar-sterling exchange rate.

On 4 August, details of the fourth agreement were made public. It matched a late-July “best and final” offer from Prologis that SEGRO’s board said it was prepared to recommend to shareholders.

SEGRO shareholders will receive 0.0920 new Prologis shares for each SEGRO share, with the option to elect for up to 25% of the consideration in cash at 1,031.7p a share. Based on the Prologis closing share price of $149.94 and the dollar-pound exchange rate on July 21, the day before Prologis announced its best and final proposal, the offer then valued each SEGRO share at 1,031.7p and the entire company at £14.0 billion. This looked like a great price – a 14% premium to SEGRO’s EPRA NTA (effectively, adjusted net asset value) of 902p a share.

However, the price looks far less attractive today – it has fallen by more than £1.1bn. Prologis’s share price has dropped back to around $140, reducing the implied offer by more than 8% to 945p a share, or £12.86bn. SEGRO shareholders electing to receive up to 25% of the consideration in cash are faring slightly better – their offer is around 22p higher than the all-share option at 967p a share.

Ironically, the current price of the fourth and recommended offer is well below Prologis’ third proposal of 993p a share (based on a share price of $149.79 and the dollar-sterling exchange of 1.3445 on 17 July), which was rejected by SEGRO’s board.

Of course, the takeover may turn out to be more attractive, since as a scheme of arrangement it will be voted on some time in the first half of next year. The actual value Segro shareholders receive will depend on whatever Prologis’s share price and the dollar-sterling exchange rate happen to be on the day the shares are actually delivered (the ‘effective date’).

Unlike the club that sold its star to Real Madrid, SEGRO’s shareholders don’t get to bank the fee and move on; they’re still on the pitch, exposed to the scoreline until the final whistle.