Shopping centre behemoth Westfield Group (ASX: WDC) has this morning released its long-awaited explanatory memorandum. In a note to security holders, its controversial merger proposal with sister trust, Westfield Retail Trust (ASX: WRT) was explained, for which two independent experts have deemed it to be both ‘fair and reasonable.’
Under the deal, Westfield Group’s Australian and New Zealand assets would be merged with those of Westfield Retail Trust to form Scentre Group, while its international assets and development opportunities would be spun-off to form another new entity to be known as Westfield Corporation.
Independent experts KPMG and Grant Samuel & Associates have both deemed the deal to be ‘fair and reasonable’, and in the best interests of shareholders in both parties. Westfield Retail Trust shareholders would hold 51.4% of Scentre, which fits between KPMG’s fair merger ratio measure of somewhere between 51.3% and 51.8%.
There is certainly logic behind the deal. By separating the local and international divisions, both entities would be able to focus on their own growth and redevelopment plans. The problem is, Westfield Retail Trust shareholders are largely opposed to the $1.8 billion in management costs they would be responsible for paying, arguing that the figure is far too high.
While it had been widely believed that the deal would be sweetened more in the Trust’s favour, it appears that all chances of the $1.8 billion charge being lowered are now gone. On the release of the memorandum this morning, Chairman Frank Lowy said: “I believe this restructure proposal, creating two leading and independent groups, will generate long-term growth and value for both Westfield Group and Westfield Retail investors”.
Investors will vote on the planned merger on May 29. To be approved, 75% of voters will need to vote “yes” to the deal.
Shares in both entities fell on Monday following the memorandum’s release, with Westfield Group and Westfield Retail both losing 0.8%. At today’s price, both present as attractive buys although Westfield Group’s international exposure make it the more compelling of the two.