Westfield shares tumble since restructure announcement

Whilst investors and analysts have expressed their understanding regarding the strategic and management reasoning behind the decision to split Westfield’s (ASX: WDC) Australasian and international assets, they are also beginning to become nervous regarding the deal.

Westfield’s (“the group”) and Westfield Retail Trust’s (ASX: WRT) shares have both tumbled since the announcement was made last week, which will see Westfield Retail Trust change its name to Scentre Group and have its assets merged with Westfield Group’s Australian and New Zealand malls (a new company known as Westfield Corporation will also be formed which will comprise of the group’s international assets).

The group’s share price soared 6% following the announcement but has since fallen 6.1% to $10.12. Meanwhile, Westfield Retail Trust’s share price has dropped from $2.99 to $2.89.

Although there is certainly logic behind the deal, investors and analysts are seeking greater clarification regarding details on valuation and transparency of the deal, as well as costs and long-term impacts that could affect investors. Goldman Sachs, for instance, believes that the pricing of Westfield Group implies an “excessive” valuation to property and development management income streams (after having taken into account overheads). However, it still believes that Scentre will prove to be the better balanced portfolio of assets out of the two companies formed, given that it will be led by an experienced management team and have ownership interests in 15 of the nation’s top 20 shopping centres.

On the other hand, other analysts have also questioned how Scentre will be able to afford its $2 billion development pipeline, given that the numbers suggest Scentre will have to pay the $1.4 billion transaction and hedge restructuring costs.

Foolish takeaway

Whilst it has long been thought that Westfield’s Australian assets are the company’s strongest, the group has also begun redevelopment projects on some of its more prominent international stores, including the World Trade Centre mall in New York as well as Westfield London and its Croydon store (also located in London), which should provide a boost in long-term profitability.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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