Unibail-Rodamco, Europe's largest shopping centre landlord, has announced it is acquiring Sydney-listed peer Westfield for $24 bn (€21 bn).
One of the largest international real estate deals ever, the merger of the European and Australian listed groups creates a global property leader with €61.1 bn of gross market value, located in 27 of the world's retail markets and cities in the US, UK and continental Europe.
Under the agreement, Westfield securityholders will receive a combination of cash and shares in Unibail-Rodamco, valuing each Westfield security at US$7.55 (€6.41). This represents a premium of 17.8% to Westfield's closing price on 11 December 2017. The transaction implies an enterprise value for Westfield of US$24.7 bn (€20.96 bn).
Although Westfield does not report on net asset value but on net tangible assets, Unibail-Rodamco’s executives said in a conference call that according to their own calculations they are buying Westfield at a 6% premium to net asset value. ‘Overall we think this makes sense,’ Unibail-Rodamco’s CEO Christophe Cuvillier said. The deal is expected to be accretive to earnings per share from the first year and will reflect a two-digit internal rate of return, he added.
The Westfield brand is being retained and the combined platform will own and operate 104 assets, attracting 1.2 billion visits annually, 'creating a must-have partner for all global retailers and brands across Europe and select markets in the US', according to Unibail-Rodamco. Half (56) of the 104 assets, representing 84% of the combined GMV, are flagship shopping destinations. The combined group will have a €12.3 bn development pipeline with iconic developments in London, Milan, Hamburg, Brussels, Paris, San Jose, Lyon and other major cities.
The shopping centre portfolio will represent 87% of the group’s portfolio alongside Unibail-Rodamco’s existing office (7%) and convention & exhibition (6%) portfolios, both located in Paris.
Westfield, a developer-operator, was created by the Lowy family in Australia in the 1960s. The property empire was split in 2014, with the group’s US and European assets retaining the Westfield name, while the Australian and New Zealand malls were spun off into ASX-listed Scentre Group.
Unibail-Rodamco’s Cuvillier said the company had been thinking about a merger with Westfield since the 2014 split. ‘But these things take time,’ he added. The deal is the latest M&A transaction in the global retail property sector, with UK REIT Hammerson offering £3.2 bn ($4.3 bn) to buy its smaller rival Intu and Brookfield attempting to buy GGP for $15 bn.
Read and download Unibail-Rodamco's presentation on the deal
Strategy extension
Westfield’s 35 shopping centres in the US and UK are a ‘natural extension’ to Unibail-Rodamco’s continental European portfolio. 'Value-creation opportunities do not come along often. This is a unique opportunity for us. It adds 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,’ commented Cuvillier. ‘We believe that this transaction represents a compelling opportunity for both companies to realize benefits not available to each company on a standalone basis, and creates a strong and attractive platform for future growth.'
Unibail-Rodamco's supervisory and management boards unanimously support the transaction. Westfield's board has also unanimously recommended the transaction in the absence of a superior proposal and subject to an independent expert concluding the deal with Unibail-Rodamco is in the best interests of the Westfield securityholders.
The Lowy family has entered into a voting agreement under which it has agreed not to sell its interest in Westfield during the period of the transaction, and to vote in favour. The Lowy family will own a 2.5% stake in Unibail-Rodamco following the transaction — an investment worth about $1 bn. It has also agreed to maintain a 'significant' shareholding in the group.
Commenting on the transaction, Westfield’s chairman Frank Lowy said that Unibail-Rodamco’s track record made it the natural home for the legacy of Westfield’s brand and business. ‘The transaction announced today is 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.’
Financing
Deutsche Bank and Goldman Sachs have provided a €6.1 bn loan to cover the cash portion of the offer, refinancing requirements at Westfield and Unibail-Rodamco and transaction costs. The bridge facility is expected to be repaid with a combination of senior debt and deeply subordinated hybrid securities (€2 bn).
In line with its ongoing portfolio review, Unibail-Rodamco has earmarked about €3 bn of assets, or roughly 5% of the group’s combined net asset value, to be disposed over the next several years. These are Unibail-Rodamco assets, which no longer meet the double-digit return the company looks for. Unibail-Rodamco expects synergies of €100 mln per annum from the deal, largely from overlaps in the corporate structure and staff cuts including the resignation of Westfield’s entire senior management team.
After closing of the deal, expected for mid-2018, Christophe Cuvillier will be the group CEO and Colin Dyer will be the group chairman of the supervisory board. The group will have its headquarters in Paris and Schiphol, the Netherlands, with two regional headquarters in Los Angeles and London. The group will retain its tax-efficient REIT status with the US operations being transferred to a newly-created Dutch REIT in which Unibail-Rodamco will hold a 40% stake.
