Two property investment companies with major assets in the West Midlands are joining forces in a deal valued at £811 million.
Days of City speculation ended yesterday when British Land announced it had agreed to buy Pillar Property in an all- cash deal aimed at strengthening its position in the booming out-of-town retail property market.
Under the deal, Pillar's founders, chairman Raymond Mould and chief executive Patrick Vaughan, stand to make about £ 68 million between them.
British Land, Britain's biggest property investment groups by assets, said it was paying 855p a share for Pillar.
The group is best known in the West Midlands for its ownership of the Blythe Valley business park, next to the M42 at Solihull.
Pillar is a major developer of retail centres and its portfolio includes the 171,694 sq ft Crown Wharf at Walsall and the smaller Banbury Cross centre at Banbury.
Some analysts yesterday said the deal coincided with signs that the retail sector was going off the boil.
But British Land chief executive Stephen Hester, whose first deal this is since his appointment last year, said out-of-town retailing was likely to remain the fastest-growing part of the property market in the next five years.
"You can barely pick a retailer that isn't finding out of town an area where they are expanding, even in tougher times," he said.
"The place to be will be outof-town retail warehouses."
The offer values Pillar at a 9.6 per cent premium to its 780p net asset value per share at March 31 and at 7.5 per cent above last Thursday's closing price of 795p.
As a bulwark against a possible counter bid, British Land said it had bought GE Pension Trust's 21.5 per cent stake in Pillar.
Selwyn Jones, at brokers Collins Stewart, said: "Retail parks will remain at the forefront of performance for property given the planning constraints and given the increasing number of retailers who want exposure in outoftown centres. But they've [British Land] also paid a strong price."
Analysts said the acquisition was a move by Mr Hester to stamp his authority on British Land after taking charge last July.
It is also British Land's second attempt to shift towards the asset and portfolio management business after its failed bid for Aberdeen Property Investors early last year.
Following yesterday's deal, which should be completed by August, British Land will own or manage more than £10 billion of retail assets. Pillar, which also yesterday announced a 3.8 per cent rise in annual profits to £21.7 million, owns about £1.3 billion of property assets and manages out-of-town retail parks valued at about £2.7 billion.
The deal is the latest in a wave of consolidation as UK commercial property prices have soared and yields - rent as a proportion of capital value - have fallen on a huge inflow of capital into bricks and mortar.
It follows Land Securities' £517 million acquisition of Tops Estates earlier this month.