The Lowy Family might take about $25 million in annual salary payments out of the Westfield shopping centre empire, but their decision to pump another $282 million of family money into Westfield’s whopping $3 billion rights issue is still quite remarkable.
Westfield shares remain suspended as institutions decide whether to take up the 2-for-23 share offer priced at $19.50, but based on the last trade of $20.90, the Lowy family’s 166.5 million shares were already worth $3.479 billion.
BRW estimates that the family is worth $6.51 billion, so this would suggest that pumping another $282 million into the company will make the Westfield holding about 60% of their net worth.
Andrew Forrest’s stake in Fortescue Metals is today worth $3.595 billion, so the Lowys will reclaim second place after James Packer’s $5 billion stake in PBL once the rights issue is completed.
Westfield traditionally raised its capital over the years through its various Trusts, although the family did not have a direct stake in them as their stake was always held through control of the old management company, Westfield Holdings.
The big three way merger of all the Westfield entities in 2004 translated the family’s 30% stake in Holdings into a 10% stake in the combined group.
Rather than get further diluted by this capital raising, the family has chosen to write out a very big cheque for the first time in their 46 years building the empire. Then again, with a forecast 2007 distribution of $1.065, the family’s expanded stake will generate $192.7 million in income this year, which dwarfs the $152.6 million in dividends that James Packer will bag from PBL in 2006-07.
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It should be remembered that Frank Lowy is acutely aware of global capital markets and interest rate movements, given that Westfield houses Australia’s largest private debt pile of $20 billion and Frank sat on the Reserve Bank board for 10 years until June 2005.
This, of course, represented quite a conflict of interest but no-one seems to care. US bond yields have just rocketed by almost 50 basis points over the past few weeks, which, when combined with the current bubble in listed property trusts, suddenly makes a whopping rights issue more cost-effective than more borrowings. It’s also set the hares running about a big takeover.
Multiplex and Investa are about to disappear from the property indices through takeovers, so the expanding $40 billion Westfield behemoth will constitute an even bigger share, with only the Big Four banks, BHP, Rio and Telstra worth more in terms of market capitalisation.
It really is a remarkable Australian success story.