Based on today's terms, the deal to restructure the Westfield businesses won't make it off the ground.
Although shopping centre giant Westfield Group (ASX: WDC) and its affiliate Westfield Retail Trust (ASX: WRT) have both expressed their confidence that their merger proposal will achieve the required 75% approval rate, investors are not so convinced.
The deal, which would see the Group's and Trust's domestic assets merged to form Scentre Group (while the Group's international assets would be spun off into a separate entity), has received significant opposition given a merger ratio which WRT investors deem to be unfair. They claim that the $1.8 billion in costs for management rights and development rights is excessive and have been pushing for the deal to be sweetened in their favour (in fact, some investors want almost $1 billion of the costs removed).
Citing a strengthening Australian division however, Westfield said that the deal was fair. The Group's joint CEO Peter Lowy said the transaction would "move ahead on the terms announced on December 4" while the Trust's managing director Domenic Panaccio said the "deal would get through".
Equity broker CLSA recently predicted that 15% of investors would oppose the deal based on its current terms if the vote was held today. UniSuper, for instance, holds 7% of the Trust's shares and is opposing the deal. While 15% is a significant portion, investors are suggesting that number is likely to be much higher.
Foolish takeaway
At today's prices, both corporations are looking attractive. WRT's shares are trading at $3.08 (3% higher since the deal was announced) while the Group's are priced at $10.37 (3.8% down since the announcement). The performance of the shares over the last three months indicates the market is also expecting the deal to be given more weighting in WRT's favour.
With the explanatory memorandum and an independent expert's report due to be released sometime in April, greater transparency will be provided, which will start to shed more light on the scenario.
