The Westfield Century City Mall in Los Angeles. Picture: AP
The fight for the future of French company Unibail-Rodamco-Westfield, which took over the international Westfield shopping centre empire in a $32bn deal almost three years ago, is coming to a head at a crucial vote this week.
The company is holding a meeting to seek support for a €3.5bn ($5.7bn) capital raising which is a crucial element of its €9bn-plus turnaround plan, but it has sparked a dissident movement opposed to the plan.
The dissidents essentially want to unwind the deal, in which Sir Frank Lowy sold off his malls in the US and Europe.
Chief executive Christophe Cuvillier is holding his ground, saying his turnaround plan is the only way forward, with an injection of fresh capital to give the company the firepower to repair the damage caused by the coronavirus pandemic and reposition it for the long term.
He has urged investors, including those in the ASX-listed secondary stock, to back his plan, and insists the now criticised Westfield deal was justified, with the takeover generating synergies and the rationale for investing in US retail property intact.
The dissident movement, led by former Unibail CEO Leon Bressler and supported by French telecom magnate Xavier Niel, would ditch the capital raising and instead look to ride out the worst of the pandemic, even as shopping malls fall in value, and sell off the entire US portfolio once the market reopens.
The dissidents have dubbed the Westfield deal a mistake and have won backers including two US pension funds, the California Public Employees’ Retirement System and State Board of Administration of Florida.
Unibail says the €3.5bn capital raising is a key plank of its broader €9bn deleveraging plan and points to its progress in selling down office assets and extending debt.
“Our job is to make sure the company is prepared for the future,” Mr Cuvillier said.
He argues it is critical to strengthen the balance sheet and keep unrestricted access to the credit markets.
He pointed to a “special relationship” with Sir Frank Lowy, as the companies had watched each other’s growth before striking the takeover deal.
“You can only have respect for a man who created such an unbelievable group,” he said. The Unichief defends the takeover of Westfield Corp, which was separate from the Scente Group that owns the local Westfield malls.
“There is no doubt the acquisition made strategic sense and was done at that time in the right conditions,” he said.
Unibail stock was initially weighed down but was recovering ahead of the corona crisis, Mr Cuvillier said.
“The strategic rationale is still there, and I strongly disagree with their view on the American market,” he said.
Mr Cuvillier said standard shopping malls were under pressure globally and Westfield flagship malls were performing well in California and New York.
He said the dispute about the company’s direction put on display contrasting approaches promoted by management and the dissidents.
“The main difference between the two is that we are a public listed company and they’re acting as a private equity company, he said.
“They want to play with the other shareholders’ money, while it is our fiduciary duty to protect all of our shareholders’ money.” He warned against relying on selling US assets in coming years without an equity injection.
He said Unibail could fall into a “very distressed situation of being a forced seller down the road”.
A new wave of the coronavirus pandemic and lockdowns in parts of Europe and restrictions in the US are also weighing on investors.
“This health crisis could become an economic crisis, turning into a social crisis, and could well also turn into a financial crisis.
“Nobody knows, so we want to protect the company and all its long-term shareholders,” Mr Cuvillier said.
Global property securities fund manager Resolution Capital said the threat of credit rating downgrades and access to debt markets being impeded meant Unibail had essentially been forced to seek additional equity to stabilise its balance sheet. “Given the critical nature of the plan Unibail has all-but announced itself as a forced seller,” Resolution Capital said.
“This is an amazing fall from grace for a company once considered a pillar of capital management and shareholder returns in the global REIT sector.”
The fund manager said the Westfield acquisition would not be remembered fondly.
“While timing was unfortunate, the execution in terms of price and leverage employed increased the risk profile of the company and reduced the margin of safety should an exogenous shock occur.
“And that it did, leading to the current predicament where shareholders are facing a material impairment in value,” Resolution said.
