Bittersweet deal sees the end of a family business

There is a finality in this deal: it is the end of the retail line for Frank Lowy and sons Steven and Peter.

Westfield shareholders have become used to the restless dealmaking urge that drives Sir Frank Lowy.

It was only three years ago that they were voting on the latest in a long line of restructurings of the group that led to the creation of this Westfield. Rumours that it would seek a US listing have persisted.

For those who have struggled to keep up with the changes, Westfield co-chief executive Peter Lowy put in stark terms the outcome of all those deals — $1000 invested at the company’s inception would today be worth $440 million.

But there is a finality in this latest deal: the family and the board recommending the $US24.7bn ($32.8bn) cash-and-scrip bid from Unibail-Rodamco. It is the end of the line for Sir Frank and sons Steven and Peter and for what was very much a family business. As they said yesterday, they are moving from executives — although proprietors might be a better description — to investors.

They are swapping a 10 per cent stake in the company they founded — as well as the chairman and co-chief executive roles — for 2.5 per cent of the Franco-Dutch retail group and about $US1bn in cash.

Peter will join the board of the expanded Unibail-Rodamco as a non-executive director, while Sir Frank will chair a newly created advisory board.

That mirrors a journey they took in 2014, when they divided the empire into Westfield Corp and the Scentre Group that houses their Australian malls.

Steven — who started work at Westfield’s New Jersey mall as a 24-year-old in 1986 — remains on the board as a non-executive ­director and speaks for about 4 per cent of the stock.

Peter and Frank Lowy (both on a screen) and Steven Lowy announce the takeover of the Westfield Corporation by Unibail-Rodamco at a press conference at the Westfield Group in Sydney. Picture: John Feder.

As Sir Frank said yesterday, the second most important day in the group’s history — after its founding in 1960 — is a bittersweet one for the family. It will take some adjusting not to have to wake up in the morning and go to work in the family firm, along with the punishing travel involved in running an international business from Australia

That the Westfield name will live on — the merged group deciding to adopt its branding for their own malls around the world — will be the legacy for what has been a towering presence on the Australian business scene for two lifetimes.

But it is clear that the family’s grip on the empire has been loosening as their international ambitions have grown. It might also suggest that they can see a much more difficult time ahead in a business where they would be very familiar with the cycles of retail and property markets.

But as the brothers noted, there is a lot of competition for a limited number of the type of “fortress” malls that Westfield has pursued in the US, UK and Europe, and a lot of sense in combining the two groups to pursue them rather than going head to head.

For the non-family shareholders that is part of the compelling logic driving them to at least consider, if not encourage, a deal like the one being proposed.

Westfield assets under management.

A quick reading of the top-20 shareholders of both suitor and quarry shows that at least 10 of them are common to both.

Most of the usual suspects are there, including Blackrock, State Street, Vanguard, Dimensional Fund Advisers, Norges Bank, UBS, Deutsche Bank, the State of California and the Government Pension Investment Fund of Japan

A combination of scrip and cash that allows them to stay invested in what will be the premier mall owner in the world could be an attractive proposition, subject to any queries they may have about price. For the local market the deal is both an endorsement of its ability to nurture and grow international businesses and a reminder of the difficulty it has in keeping them.

One way of looking at the deal is using the Lowy shareholding — which shrinks from 9.5 per cent of Westfield to 2.5 per cent of the combined group.

Assuming the maximum take-up of Unibail-Rodamco CHESS depository instruments among local shareholders the local presence will be at best a quarter of what it was.

The third or fourth biggest retirement savings pool in the world has become a lot more international in its outlook over recent years. But it remains dominated by the big banks and resource companies, having produced few new economy stocks of international note. The loss of a world-class retail property operator will further narrow the options of local investors and further hasten them to look abroad for investments.