Westfield takeover wins government approval

The Treasurer’s approval, following a recommendation by the Foreign Investment Review Board, was viewed as a formality, as the deal covers Westfield centres in Britain, Europe and the United States, rather than the local shopping complexes held by the Scentre Group.

But the prospects of the Unibail bid have been boosted by the relatively cheap pricing on another mall merger announced this week.

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Shares of retail landlords in the US plunged after Canadian group Brookfield Property Partners unveiled a $US15 billion deal that would see it buy the 66 per cent in US mall operator GGP it doesn’t already own.

That price — $US23.50 per share in cash or stock — was higher than an offer Brookfield made in November but fell short of investor hopes and shook confidence in the sector.

Unibail-Rodamco’s offer for Westfield had been struggling as the value of the French group’s offer was buffeted by volatile international share, bond and currency markets, and local fund managers have pushed for the deal to be improved.

However, New York-based CenterSquare Investment Management chief investment strategist Scott Crowe told The Australian that the GGP takeover price made the price Unibail is paying for Westfield “look very expensive”.

Westfield Corporation co-chief executive Steven Lowy, right, looks on as chairman Frank Lowy speaks to the media during the announcement of the deal. Picture: AAP.

“It’s true that Westfield on average has much better assets and that there are elements of the Brookfield offer that deserve a discount, such as the externally managed and diversified nature of the Brookfield security that GGP shareholders will receive, however the delta is still too wide,” he says.

But Australian fund managers have argued the Unibail deal has strategic merit, as it would create a global property giant with 104 shopping centres across Europe and the US, but have called on the French company to sweeten its offer via changing the ratios in the scrip-heavy bid or offering more cash.

But Crowe plays down the chances of a higher bid. “We don’t believe Westfield shareholders should be holding their breath for a better offer — what Unibail has put on the table is a strong bid and there is an absence of large scale institutional private capital on the side lines looking to step in front of retail disruption,” he says.

“If one of the other US REITs wants to get involved in the M & A frenzy, there are much more attractively priced targets domestically,” he adds.

Other US-based fund managers expect the deal to go ahead, despite Westfield trading at $8.52, a wide discount to the current offer price and the initial value of $10.01 per share.

Resources Real Estate global portfolio manager John Snowden attended the recent Citigroup real estate conference in Miami and says he does not believe the US investor community seriously thinks the deal could fall over.

Unibail-Rodamco chief executive Christophe Cuvillier. Picture: Chris Pavlich.

“I heard zero comments to the effect that the deal wouldn’t proceed,” he sys. “Indeed, (Simon Property Group) David Simon chief executive specifically said Simon wouldn’t be getting involved … I also find it hard to believe that a global pension fund or sovereign wealth fund would get into a hostile bidding war,” Snowden says.

Traders at CLSA raised concerns about the deal’s reception among regional investors two weeks ago, finding a “growing number” believed the deal may fall over, which may then spark a bidding war between global pension funds for Westfield’s assets, which include flagship malls in London, Milan and Los Angeles.

However, CLSA head of Australia real estate Sholto Maconochie says the French company is likely to complete its takeover of Westfield, noting it had been looking at the company since its 2014 corporate split.

“It’s likely it gets up in its current form. I even think Unibail could tweak the scrip ratio, very slightly in Westfield unit holders’ favour to ensure it gets done,” he says. “I think after the GGP deal, investors on the fence will be more likely to vote for it.”

He acknowledges Westfield’s lagging share price but notes a real change depends on whether a rival bid emerges.

“The majority of investors like the strategic rationale of Unibail-Westfield, but the implied pricing of the deal now looks softer. While Westfield is worth more than the implied deal price, it’s hard to see value being realised absent another bid given rising bond rates and uncertainty,” Maconochie says.

Unibail in February said it had no intention of changing its bid, although it reserved the right to do so, after being queried by the corporate regulator. Westfield will hold the shareholder vote on May 24 to determine the takeover’s fate.

It has the support of the founding Lowy family and Westfield’s board but requires the approval of 75% of Westfield shareholders and two-thirds of Unibail shareholders.

This article originally appeared on www.theaustralian.com.au/property.