Frank Lowy, the billionaire founder of Westfield Group, said Australia’s biggest shopping mall operator will press ahead with separating its global and local businesses with or without the support of its managed trust.
The board of Westfield Retail Trust deferred a vote on the proposal today, saying that Lowy’s comments materially changed the outlook for its shareholders. Lowy wants to merge the group’s Australian and New Zealand operations with the trust to create Scentre Group, with A$37.9 billion ($35.1 billion) of domestic assets under management, and Westfield Corp., with $26.6 billion of global investments under management.
The 83-year-old billionaire, who opened the first Westfield mall in 1959 and built the company into one of the world’s largest operators, is facing opposition to the reorganization announced in December. Some Westfield Retail shareholders say they would pay too much to take over management of the local business and it would have too much debt.
Losing the vote “will not diminish our determination to proceed with Westfield Group’s strategic objective of separating the two businesses,” Lowy said, according to the text of a speech to the parent’s shareholders. “We will pursue that separation — but without Westfield Retail.”
Westfield had said on April 14 it would “reconsider other alternatives that deliver similar benefits” if the proposal was knocked back. Alternatives included maintaining the status quo, selling additional interests in individual Australian properties, or Westfield Corp. keeping stakes in some Australian assets.
While 98 per cent of Westfield Group investors backed the plan, only 74 per cent of proxies cast by Westfield Retail shareholders were in favor before the vote was postponed. More than 75 per cent support from both entities is needed for the restructure to proceed. Westfield Retail Chairman Richard Warburton said a fresh vote on the proposal would be held in the next 10 to 14 days.
The reorganisation would create a clear choice for investors wanting exposure only to Australian and New Zealand malls while allowing the other entity to expand in faster- growing retail markets including the U.S. and U.K.
Westfield Retail shareholders would own 51.4 per cent of Scentre and Westfield Group investors would hold the rest under the proposal. Westfield this month said it would reduce Scentre’ debt by A$300 million, cutting its proportion to assets to 37.3 per cent from 38.4 per cent as of Dec. 31.
“Westfield Retail is paying too high a price for the operating platform, and it’s being taken up the risk curve with a lot more debt,” said Stephen Mayne, a spokesman for the Australian Shareholders’ Association, whose members together hold more than $AU20 million of Westfield Group shares and A$10 million of Westfield Retail securities. “If they’d offered 53 per cent of Scentre to Westfield Retail instead of 51.4 per cent, then we’d be talking.”
If it loses the vote, Westfield will begin drafting a new proposal immediately and expects to present a revised plan by the first quarter of 2015, Lowy said.
Westfield Group, which controls Westfield Retail as an external manager, proposed that Scentre pay the right to control itself. This would turn it into a standalone company whose only ties to Westfield Corp. would be Lowy, who would be chairman of both companies, and the Westfield branding on its malls.
While the company didn’t explicitly state the price Westfield Retail shareholders will pay for the management and development platform, Stuart Cartledge, managing director at Melbourne-based Phoenix Portfolios, in February estimated it would be about A$1.9 billion.
“Scentre Group is a better proposal, because it wouldn’t have the conflicts that an external management structure creates,” Cartledge, who voted Phoenix’s Westfield Retail shares against the plan, said by telephone before the announcement. “But it doesn’t make sense to pay a premium.”
Westfield Group shares have risen 7.5 per cent this year, compared with a 3 per cent gain in the benchmark S&P/ASX 200 Index. Westfield Retail shares have climbed 9.1 per cent in 2014. Both companies were halted from trading.
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