Frank Lowy’s Westfield Corp accepts $32.76bn takeover offer

Sir Frank will take an advisory role following one of the biggest deals in Australian corporate history.

Westfield co-founder Frank Lowy receives a knighthood at Windsor Castle at the weekend. Pic: AFP

Mall landlord Westfield Corporation is set to be taken over by European shopping centre giant Unibail-Rodamco in a deal valuing the ASX-listed group at $US24.7 billion ($32.76bn).

The deal will create a global property giant with 104 malls in 27 retail markets around the world.

The suitor is offering a combination of cash and scrip valuing each Westfield security at $US7.55 or $10.01, a 17.8 per cent premium to Westfield’s closing share price yesterday.

The takeover has been unanimously recommended by the boards of Westfield and Unibail-Rodamco.

The combined group will have gross market value of €61.1bn ($95.43bn), 84 per cent of which is in flagship shopping destinations according to Unibail-Rodamco.

The Lowy family said it intends to maintain a substantial investment in the combined group and is committed to its success.

Westfield chairman Sir Frank Lowy said the deal was “the culmination of the strategic journey Westfield has been on since its 2014 restructure”.

“We see this transaction as highly compelling for Westfield’s securityholders and Unibail-Rodamco’s shareholders alike,” Sir Frank said.

“Unibail-Rodamco’s track record makes it the natural home for the legacy of Westfield’s brand and business. We look forward to seeing Westfield continue to grow as part of the world’s premier owner of flagship shopping destinations.”

Peter (left) and Frank Lowy on screen, and Steven Lowy in Sydney, announce the takeover. Picture: John Feder/The Australian.

The offer includes 0.01844 Unibail-Rodamco stapled securities plus $US2.67 in cash for each Westfield security.

The combined group is set to be jointly listed in Amsterdam and Paris, with a secondary listing via Chess Depositary Interest on the ASX.

It will have shopping centres in global cities from London and Paris to New York and Los Angeles, as well as a combined development pipeline of €12.3bn across Europe and the US.

Sir Frank will retire as chairman of Westfield and chair a newly created advisory board, while two Westfield board members including co-chief executive Peter Lowy will be appointed to the supervisory board.

Peter Lowy and Steven Lowy will retire as co-chief executives of Westfield, Michael Gutman will retire as President and COO of Westfield and Elliott Rusanow will retire as CFO of Westfield.

The combined group’s senior management will be drawn from both groups.

Sir Frank said he had “great confidence” in the management team to lead the combined group.

“Today is the second most important day in Westfield history,” Sir Frank said.

“The most important day was in September 1960 when Westfield was born,” he said, adding he had had a “burning ambition” to succeed.

The deal was in the best interests of both staff and securityholders, he said.

“This is obviously a day of mixed emotions for me. I’m 100 per cent comfortable with our decision,” he said.

“I’m also proud that Unibail will extend the famous red Westfield brand across all their flagship assets… What a privilege it has been to lead this great Australian company, we started small but we took Westfield to the world.”

Unibail-Rodamco launches a deal valuing Westfield at $US24.7 billion ($32.76bn). Photographer: Bloomberg

Unibail-Rodamco chairman and chief executive Christophe Cuvillier – who will remain as group chief executive officer after the deal – said the group has “immense respect” for the accomplishments of the Lowy family and the Westfield team.

He said the deal would bring company “a number of new attractive retail markets in London and the wealthiest catchment areas in the United States. It provides a unique platform of superior quality shopping destinations supported by experienced professionals of both Unibail-Rodamco and Westfield.”

Mr Cuvillier told investors in a separate media conference that Westfield was a “perfect fit” for the suitor and a “natural extension” of its strategy.

“All of us here at Unibail-Rodamco have immense respect for what Frank Lowy, his family and the Westfield team have accomplished over the years,” he said.

“Despite all you’ve heard about the difficulties in the retail markets in the US and UK, Westfield has continued to perform strongly.”

In response to a question about synergies, Unibail-Rodamco chief financial officer Jaap Tonckens highlighted the “significant corporate staff” that Westfield has, “like any company its size”.

“Both Peter Lowy and Steven Lowy and the senior management team of Westfield will step down upon the closing of the transaction and that basically provides with a significant amount,” Mr Tonckens said.

Peter and Steven Lowy had reported pay of $26.26m in financial 2016 according to the Australian Council of Superannuation Investors.

The combined group could also achieve revenue synergies such as through rolling out the internationally recognised Westfield brand and advertising the assets’ global events such as sales and Christmas, Mr Cuvillier said.

Unibail-Rodamco expects to sell approximately €3 billion of assets over the next few years, Mr Tonckens said.

How a merged Unibail-Rodamco and Westfield will look

The Lowy family has agreed not to sell its stake in Westfield during the deal and to vote in favour of the takeover in the absence of the Westfield board recommending a better offer.

The suitor expects run-rate synergies of €100 million per annum and predicts the deal to be accretive to recurring earnings per share in the first full year.

The deal is subject to approval by shareholders of both groups and Australian court approval and is set to close in the first half of 2018.

Deutsche Bank and Goldman Sachs are providing a €6.1bn committed acquisition financing facility to cover the cash part of the takeover, refinancing requirements and transaction costs.

As previously flagged by The Australian’s DataRoom column, Deutsche Bank and Goldman Sachs are financial advisors to Unibail-Rodamco, while Rothschild & Co is acting as lead financial advisor to Westfield and Jefferies and UBS are joint financial advisors.

It comes after Westfield entered a trading halt today, saying it was in talks about a potentially significant corporate transaction.

Westfield shares closed yesterday at $8.50, valuing the company at $17.66bn and Sir Frank’s 9.5 per cent stake at $1.68bn.

CLSA analyst Michael Vincent said Westfield was worth “at least” $A10.01.

“I think Westfield shareholders may want a little more, like $10.20 which is a neat 20 per cent premium to close. Also don’t forget about the 93m shares out short,” Mr Vincent wrote in a client note.

Sir Frank is the fourth richest person in Australia with wealth of $8.26bn, according to this year’s Rich List.

The 87-year-old magnate was last week recognised for his contribution to the British economy in a knighthood ceremony at Windsor Castle. His sons Steven and Peter are co-chief executives of Westfield.

As reported on The Australian’s Trading Day blog and in DataRoom today, Unibail-Rodamco attempted to buy Westfield Corp around 2014. It was then working with Goldman Sachs.

Goldmans has also worked for landlord Simon Property Group, which has also run the ruler over the mall owner.

Westfield (WFD) owns 35 malls overseas worth $32bn including in the US and the UK. In 2014 it separated from Scentre Group, which owns malls in Australasia.

Unibail-Rodamco is Europe’s leading listed commercial property company, specialising in shopping centres in European capital cities.

Its portfolio is worth €42.5bn.

The negotiations took about six weeks and the bid was a “very good price” for shareholders, Sir Frank said.

Peter Lowy added that the stock – like retailers all over the world – had been trading at a significant discount to underlying value over the last 12 months but the deal would make up the gap.

Westfield shares were trading at $8.94 a year ago and fell as low as $7.35 this August.

But Westfield had spent the years since the GFC repositioning itself and its asset base, becoming the company that is “extremely attractive” to Unibail-Rodamco, Peter Lowy said, adding that there had not been any discussions about Scentre Group which owns Westfield malls in Australia and that this deal would be subject to a better offer if one materialised.

Sir Frank said he had “mixed feelings” about the deal.

“I’m happy about the decision otherwise we would not have made the decision, but when I look back over 67 years it’s a lifetime – more than a lifetime – of work I’ve put into this company and I am not sad but it’s mixed feelings at the moment for me,” Sir Frank said.

“It is time, from a personal point of view, for me to move on.”

Sir Frank said he would not have much spare time but he would spend his time investing rather than managing.

He expected other investors to welcome the deal.

Steven Lowy said the group had adapted its malls to changing consumer behaviour.

“Unibail-Rodamco has done the same to their portfolio, it really creates an opportunity that is incredible robust and will definitely be able to adapt to the changes in society that are taking place, Amazon or no Amazon,” he said.

Steven Lowy speaks to the media at Tuesday evening’s press conference. Picture: AAP/Ben Rushton.

It comes as wealthy Australian families have been taking advantage of soaring prices for top commercial assets.

Earlier this year the Besen family sold its quarter stake in Melbourne’s Highpoint Shopping Centre to a GPT Group fund for $680 million.

Morry Schwartz and his family sold a hotel and historic pub for close to $100m combined, while the Myer family sold a Melbourne office building for about $75m.

Around the world, a number of major mall empires are in play.

In the US, mall owner General Growth has rejected Brookfield’s offer to acquire the 66 per cent of shares it doesn’t already own in the company.

But Brookfield remains optimistic about its $US14.8bn bid and the pair are still in talks.

JPMorgan said the 5.7 per cent implied cap rate on that deal was too high and said it “looks an opportunistic bid”.S

They tipped that the offer would need to be sharpened considerably to be successful, which could open the way for a third player, like Westfield, to become involved.

Across the Atlantic, British shopping centres owner Hammerson has agreed to buy smaller rival Intu Properties for about £3.4 billion, with the deal to create a mall giant controlling £21bn of assets.

The deal has been struck at a 27.6 per cent premium to the last close, showing the value that is being attributed to top class malls.

Westfield shares last traded at $8.50 each.