Despite the investor backlash regarding the split proposal of retail giant Westfield Group (ASX: WDC), there are signs of optimism amongst analysts who believe the deal would make both the group and its satellite trust, Westfield Retail Trust (ASX: WRT), more attractive post-split.
The deal would see the two companies' Australian and New Zealand assets merged to form a new company to be known as Scentre Group, while its international assets would also form a new company known as Westfield Corporation.
Of course, there is no certainty that the proposal will be passed. In order to be accepted, 75% of security holders must vote in its favour at the company's annual general meeting in May, but the group may face strong opposition due to the perceived high costs of the split as well as the lack of transparency that has been provided. While many see the logic behind the proposal, the deal will likely need to be sweetened for investors in the Retail Trust.
While many analysts are still showing concern regarding how Scentre Group would fund its development pipeline, as well as the general merger ratios behind the split, others believe that both the Trust and Westfield Group would be better off post-split.
The Trust could benefit from retail sales growth, a potential expansion of its development pipeline, as well as sales of stakes in its highest performing assets. Meanwhile, the Group would possess a number of key shopping malls worth US$5.8 billion located in the downtown or central business districts of major cities such as New York, London, Los Angeles and San Francisco.
Foolish takeaway
After independent equity broker CLSA upgraded its recommendation last week, 70% of analysts currently have a 'buy' recommendation on the trust, with an average 12-month target price of around $3.40 per share. From today's price of $2.97, this represents a 14.5% upside for investors (not including dividends), although the consensus target would likely rise should the deal be sweetened.
