Shareholders in Westfield Corp Ltd (ASX: WFD) may get an early Christmas present as speculation builds that it is about to get a takeover offer from a French rival after the stock went into a trading halt today.
Such an outcome will be a great way to end the year as Westfield's share price has been lagging the market since the start of the year. It isn't only Westfield that is in the doldrums. Shopping centre stocks have been on the nose with investors fretting over the potential disruption from online retail giants.
Westfield is down close to 10% this year while Vicinity Centres Re Ltd (ASX: VCX) is 4% in the red and Scentre Group (ASX: SCG) is nursing a 6% loss. In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) looks on track to finish the year with around a 6% gain.
Westfield has only so far mentioned that the trading halt is in relation to "a potentially significant corporate transaction" and that is often code for a merger or acquisition.
There are rumours that French shopping mall heavyweight Unibail-Rodamco may be lobbing a cash and scrip bid for Westfield which will value the target at over $20 billion, according to the Australian Financial Review.
The offer is rumoured to be at a 10% premium to Westfield's last closing price of $8.50, which is about what real estate deals are usually priced at.
Unibail-Rodamco is believed to have tried unsuccessfully to consummate a deal to buy Westfield in 2015, but the AFR believes Westfield's chairman and largest shareholder, Frank Lowy, is supportive of the tie-up this time.
The bidder is listed in Frankfurt and Amsterdam, and is the largest commercial landlord in Europe.
Another possible outcome is for Westfield to acquire US-based rival GGP after GGP rejected a US$14.8 billion takeover offer by joint-venture (JV) partner Brookfield for the 66% that the bidder doesn't already own.
It's hard to dismiss this possibility given that Westfield does have a history of pursuing JVs and has struck joint-ownership deals with AMP Limited (ASX: AMP) and the Canada Pension Plan Investment Board (CPPIB) in the past.
While Westfield has been underperforming the broader market, it is still trading at around a 30% premium to many US-listed peers, so it won't be difficult for management to justify a scrip-based offer.
Other possible deals that management could announce include a divestment of its North American regional assets or a real estate tie-up in France, added the AFR.
Westfield issued a third quarter update last month and said that the average specialty store rent had increased by 8.4% to US$92.96 per square foot in the September quarter, although general retailers in its centres continue to struggle.
The group's development pipeline stands at US$3.8 billion (Westfield's share is US$2.5 billion) and the projects under development are forecast to yield between 7% and 8%.
A takeover of Westfield will excite investors but I remain cautious on the sector as I see better value elsewhere regardless of how you see the online competitors play out – we're looking at your Amazon.
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