Westfield Group sweetens deal – here’s what you need to know

The altered terms will likely be enough to get the proposal over the line.

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Finally, there is something extra for Westfield Retail Trust (ASX: WRT) shareholders to smile about.

After months of uncertainty, the Trust’s larger affiliate, Westfield Group (ASX: WDC), has altered the terms of its controversial merger proposal to form the new Scentre Group, announcing that there would be a $300 million improvement made to the deal. Here is a summary of the key points of the revised terms:

  • The $300 million adjustment will be reflected in Scentre Group’s net debt, improving the new entity’s financial position.
  • This will reduce Scentre’s gearing level to around 37.3%. Over time, Scentre intends to operate with a gearing range of between 30% and 35%.
  • Scentre Group’s forecast funds from operations (FFO) per security will increase from 21.5c to 21.75c
  • Scentre Group’s net tangible assets will climb from $2.82 per security to $2.88 per security, an increase of 2.1%
  • The merger ratio will not change. Westfield Retail Trust shareholders will still hold a total of 51.4% of the new entity while the remainder (48.6%) will be held by Westfield Group security holders.
  • All other terms of the merger proposal remain as disclosed in the Explanatory Memorandum released on 14 April 2014.

The revised terms greatly improves the likelihood of the deal receiving the necessary approval from shareholders in both entities when they vote on May 29. Shareholders in the Trust had previously been concerned regarding the heavy gearing levels and the overall costs they would be responsible for paying in creating the new entity. Commenting after the announcement was made, Westfield’s chairman Frank Lowy said: “In response to some concerns and in consultation with directors of Westfield Retail, Westfield Group has decided to improve the merger terms for Westfield Retail”.

Foolish takeaway

Given that investors have widely thrown their support behind the logic of the deal, the altered terms will likely be enough to get the proposal over the line. Scentre Group would be able to focus on improving its domestic operations while Westfield Corporation (which would consist of Westfield Group’s international assets) could increase its focus on global expansion.

The adjusted terms released to the market on Tuesday afternoon are now final and will be put to shareholders to vote on May 29.

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