Shopping centre owner Hammerson has called off its plan to take over rival Intu in a £3.4bn deal, amid concerns about the health of the UK retail sector.

Hammerson, which owns Birmingham's Bullring centre and Brent Cross in London, had agreed in December 2017 an all-share merger with rival Intu, which owns the Lakeside centre in Thurrock and Trafford Centre in Manchester.

Hammerson would have become the biggest UK property company with £21bn in assets if the deal had gone through.

It blamed weakness in the retail sector for calling off the deal.

It has been a rocky few months for retailers and their landlords, with the likes of Toys R Us, East and Maplin stumbling into administration. Many others, like Prezzo and New Look, have closed stores.


Image: Hammerson had hoped to add the Lakeside shopping centre in Thurrock to its stable

At the same time, consumers have been tightening their belts as wages have failed to keep pace with inflation. And many have chosen to switch their spending online.

Hammerson "reassessed the proposed acquisition of Intu in light of updated information on current market dynamics in the UK", the company said in a statement to the London Stock Exchange.

"Over the last five months, the financial strength of retailers and other tenants in the UK has softened and a number of retailers have entered into administrations or CVAs (company voluntary arrangements), while consumer confidence has also remained subdued."

It was also clear that the deal did not have the backing of shareholders.

"The equity market's perception of the broader UK retail property market has deteriorated since the start of the year," Hammerson's statement continued.

"This has led to a disconnect between the company's share price and the fundamental value of its business and prospects.

"This perception has been intensified by market concerns over the extended period of time that it would take to complete the transaction and realise longer-term returns from the Intu acquisition."

Hammerson chairman, David Tyler, later defended the company's position.

He told the Reuters news agency: "I'm not considering stepping down and the board has 100% confidence in David Atkins as chief executive and his senior management team," he said.

Hammerson, which also owns Cabot Circus in Bristol, said it would sell assets and invest more in premium outlets and in Ireland.

Image: Hammerson owns the Cabot Circus shopping complex in Bristol

Last week, France's Klepierre dropped its hostile £5bn takeover bid for Hammerson.

The French company said the board of Hammerson had not provided any "meaningful engagement" on its increased offer.

Shares in Hammerson rose 4.2% during Wednesday's trading while Intu's stock, which had initially tumbled 7%, closed 4.1% down.

Intu said Hammerson's explanation for calling off the merger was "unsatisfactory" as both companies had issued strong trading updates in recent days.