Westfield Group will need to add more sugar to its corporate restructure

The deal looks unlikely to receive approval based on the original terms.

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There is certainly logic to the Westfield Group (ASX: WDC) and Westfield Retail Trust (ASX: WRT) merger proposal, although the costs involved for management rights of the new Scentre vehicle are far too high.

That is the general consensus amongst investors in the lead-up to the company’s investor day on Wednesday and the shareholder vote which will take place on May 29, where it will be decided whether or not the merger will go ahead as planned. The deal will require a 75% approval rate which is looking increasingly unlikely based on today’s terms.

In fact, a proprietary investor survey undertaken by CLSA found that 60% of respondents would vote against the deal if the vote were to be held today. The survey was based on 42 respondents which the investment group estimated would represent 16% of Westfield Group’s security holders and 26% of WRT’s security holders.

While Westfield Group has stood firm on the original terms that were announced on December 4 last year, it is widely believed that they will have to sweeten the deal in the Trust’s favour in order to see it receive more support. According to the survey, most of the respondents said that a lower price for management could get their “yes” vote, while less said reducing the debt level for Scentre Group would get theirs. As it stands, the Trust would be responsible for paying $1.8 billion for the costs, while investors are arguing for that figure to be reduced significantly.

Under the proposal, the Group’s local assets will be merged with those of the Trust to form Scentre Group, while the Group’s international assets would be spun-off into another new entity to be known as Westfield Corporation.

Foolish takeaway

Shares in both companies are currently trading at compelling prices as both have been outperformed by the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). However, Westfield Group is the better option out of the two given its exposure to recovering international markets – particularly in the U.S. and Europe.

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

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