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Beni Stabili’s [BIT:BNS] proposed merger with its 52.4% shareholder Fonciere des Regions [EPA:FDR] could decrease investors’ exposure to the prime Milan real estate area, making the combined entity a less compelling proposition than Beni Stabili on its own, according to a top five shareholder in Beni Stabili.

The Milan area, the focus of Beni Stabili’s business, and a growing investment area, is presumably what has driven investors to the company, the shareholder said. But the merger is expected to dilute the portion of Milan holdings within FDR’s larger set of assets, he argued.

Beni Stabili’s EUR 4bn portfolio largely consists of offices based in Milan and surrounding areas, according to the company’s website. Meanwhile, FDR’s assets breakdown is: 30% French offices, 23% German residential properties, 23% European hotels and 19% offices in Italy, according to its website.

Compounding the relative lack of attractiveness of the deal from a shareholder perspective is the fact that the offer values BNS at a discount of 10% to its 2017 EPRA NAV of EUR 0.836/share, the investor argued.

Under the deal terms proposed by FDR, Beni Stabili investors will receive 8.5 FDR ordinary shares for every 1,000 ordinary shares of Beni Stabili they own.

FDR said the merger will enhance its position as a leading pan-European integrated real estate player, according to a company press release.

The transaction is subject to approval from Beni Stabili’s independent board at the end of May, as well as by the two companies’ EGMs in September. Beni Stabili’s related parties committee will issue an opinion, as required by Italian law.

But the only potential hurdle the tie-up is likely to face could be the approval of Beni Stabili’s related parties committee, the shareholder said. Investors who do not want to exchange their Beni Stabili shares could wait until May in the hope that the body takes into account their concerns over the possibility of being diluted into FDR.

The deal is indeed likely to be approved by shareholders, mainly due to Beni Stabili’s existing investor base, a person familiar with FDR thought.

In addition to FDR, other Beni Stabili’s shareholders include Predica SA with 5.7%, Anima SGR with 5% and Leonardo Del Vecchio with 2.6%.

Shareholders who do not vote in favour of the merger are entitled to a cash withdrawal right in accordance with applicable law in Italy.

FDR is controlled by Delfin, Leonardo Del Vecchio’s holding company, with a 28.4% stake.

Fonciere des Regions and Beni Stabili were unavailable for comment.