Westfield Retail Trust heads to court today. Here’s the case for why the process is all wrong.
Westfield Retail Trust will be before Justice Paul Brereton in the NSW Supreme Court this afternoon as it seeks approval for its supplementary information memorandum and the timetable to reconvene its controversially adjourned shareholder vote on the proposed carve-up of the $70 billion global Westfield shopping centre empire.
The controversial restructure would see the assets of Westfield split into two companies — one a property trust, the other dealing with the company’s international assets. Westfield wants the Supreme Court to approve a supplementary booklet to be sent to its shareholders detailing the impacts of the de-merger. It’s an attempt to quell controversy over the de-merger, which has been debated in recent months for its perceived high gearing, high fees and unfair merger ratios.
A vote on the de-merger took place last week. But the Australian Council of Superannuation Investors (ACSI) is publicly campaigning for a whole new process which wipes out the earlier votes and gives shareholders a minimum of 28 days to consider the new information, which related to Westfield Group’s threat to establish a separate listed Australian investment vehicle if the shareholders in Westfield Retail Trust don’t vote to create one merged Australian and New Zealand company called Scentre Group.
The Australian Shareholders’ Association has taken a different position, arguing in a press release on Sunday that the 26% “against” vote lodged in the Westfield Trust proxy vote last Thursday should stand. Why give shareholders an excuse to vote again and succumb to an extraordinary proxy solicitation campaign?
However, the meeting should not be held before Wednesday June 18, contrary to erroneous media reports that it legally must be held by Friday June 13.
Assuming the judge signs off today, the 85,000 Westfield Retail shareholders would receive the material by Friday at the earliest and proxy voting closes 48 hours before the meeting. That is just too tight to meet the original 10-14 day deferral announced by Westfield Retail chair Dick Warburton.
It is also not desirable to have the meeting on a Monday or a Tuesday, because you don’t want proxy voting closing over the weekend. Ideally, it would be Thursday, June 19, a full three weeks after the original meeting.
ASA disagrees with the claims that people who sell Westfield Retail shares shouldn’t be able to vote. The turnover between now and the reconvened meeting won’t be material to the transaction. A bigger problem is the fact that Westfield has issued tracing notices so the notion of a secret ballot is completely lost and they will be able to focus lobbying on those who lodged proxies against the deal.
ASA’s opposition to the proposed Westfield restructure is primarily based on the unfair terms and increased risk. Westfield Retail (WRT) is a captive structure created by Westfield Holdings (WDC) in 2010 where investors can’t even appoint or remove directors.
However, retail investors have been attracted to its low-risk profile with solid asset backing, modest gearing and steady distributions. We always like to see alignment with directors and this was lost when the Lowy family cashed in its entire WRT stake early last year for $665 million. They created a captive vehicle, dumped it and now are relying on conflicted investors aligned with their own big position in the parent company to vote in favour of a huge transfer in wealth from Westfield Trust to its all-powerful manager.
This brazen proposal would see WRT’s debt burden soar from 22% to 38% in the new Scentre Group. Former AMP Investments boss Merv Peacock went public in a letter to the AFR today summing up the ASA’s position: “Who cares if Westfield launch another ‘spin-off’ with similar properties and development and management risk? Let it attract investors who are looking for a higher risk/return investment.”
The worst element of the deal is that WRT investors are being asked to contribute 68% of the assets into Scentre in return for just 51.4% of the total shares on issue. The difference was the effective purchase price of WDC’s Australian and New Zealand “operating platform” which the deal values at about $3 billion, something Unisuper has labelled as “exorbitant”.
Another negative is the excessive transaction costs which Scentre Group CEO Peter Allen has confirmed are a massive $570 million. This was despite Westfield founder Frank Lowy declaring a question about up to $500 million in transaction costs being “a joke”.
Seeing as Westfield Group negotiated an attractive deal with the arguably captive directors of Westfield Trust, it was no surprise WDC shareholders voted 98% in favour on Thursday.
Transaction costs aside, it also made sense for investors such as Vanguard and Blackrock, which had a bigger position in WDC, to vote their WRT shares in favour — hence the 74% support on the proxies. But for investors like Unisuper with a much bigger position in WRT, it was impossible to put lipstick on a pig, hence the unprecedented investor rebuff for the Lowy family.
After initially proposing to silently oppose the deal, Unisuper has now come out all guns blazing on behalf of its 450,000 university workers.
Positions are becoming increasingly polarised in both the media and the investment community. News Corp’s Terry McCrann has come out swinging against the deal, demanding that the Westfield Retail board be sacked after the process was “corrupted” by the last minute threats and adjournment.
On the other side, the AFR’s Chanticleer columnist Tony Boyd has enthusiastically embraced the Lowy family position and today went so far as to declare that any Westfield Retail shareholder who voted against should be publicly outed “so that all can see who was behind what might be the biggest long term value destruction in years”.
Extraordinary stuff all round.
* Stephen Mayne is policy and engagement coordinator for the ASA and was not paid for this item.