Westfield Corporation (ASX: WFD)

Late last year, Westfield Corporation updated the market about entering into an agreement with Unibail-Rodamco SE under which the latter will acquire Westfield to create the world’s premier developer and operator of flagship shopping destinations. The proposed transaction has been unanimously recommended by Westfield’s Board of Directors and Unibail-Rodamco’s Supervisory Board. Under the terms of the agreement, Westfield securityholders are said to receive a combination of cash and shares in Unibail-Rodamco, valuing each Westfield security at a price of US$7.55 (or A$10.01). The price thus represents a premium of 17.8% to Westfield’s closing security price on 11 December 2017 and implies an enterprise value for Westfield of US$24.7bn.

Recently, Unibail-Rodamco has been asked by the Australian Securities and Investments Commission (ASIC) to clarify its position on the transaction terms and the group responded by reiterating its position on the earlier offer as it believes that the value of its offer is full and fair and it has no intention to change the terms of the offer now or in future, while still reserving the right to do so.

Documentation for the proposal will be sent to securityholders of WFD in the month of April with the vote and implementation expected to occur later in the first half of 2018.

Meanwhile, Westfield’s full year results for FY17 indicated for Funds from Operations (FFO) for the 12 months ended 31 December 2017 of $707m. FFO per security was 34.0 cents, and this was at the top end of the forecast. Distribution for the 12 months ended 31 December 2017 is 25.5c per security while it announced unfranked dividend of 12.75 cents for a period of six months ended 31 December 2017.

Balance sheet assets of $23.6bn, a gearing ratio of 38.1% and $2.6bn in available liquidity, indicate a healthy financial position. Uplift from developments drove the IFRS net profit to $1,551m for the year ended 31 December 2017, and this included $847m of revaluations. The group’s Flagship portfolio along with the $8.5bn development program is expected to drive better outlook. The group expects its FY18 earnings to be positively impacted by the stabilisation of recently completed development projects including Century City and UTC together with the completion of the expansion of Westfield London. Further, the group has not provided any FFO or Distribution forecasts for 2018 at the back of the proposal to combine Westfield and Unibail-Rodamco.

Given that the offer price is better than the current market price of $8.77, and the deal looks to be a favourable one, we believe that investors can vote in favour of the offer.
 

Combined Real Estate Platform with Unibail-Rodamco (Source: Company Reports)
 

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