Mega Mall Merger: French Bid For Westfield Creates $72BN Mall Giant As Online Threat Looms

The need for consolidation in the face of the ongoing Amazon - and broader online menace - is becoming irresistible, even for the biggest and best mall operators. Today the French-based Unibail-Rodamco, the biggest commercial landlord in Europe, agreed to purchase Westfield, the Australian-based mall operator. Unibail is offering 0.018844 shares and $2.67 cash for each Westfield share – a 65/35 stock/cash ratio – which values Westfield at an enterprise value of $24.7 billion. Westfield owns 35 shopping malls in the UK and US and is building a new mall in the Italian city of Milan. It ranks as the biggest private sector mall owner in London and the twelfth largest in the US.

If successful, the deal will be the largest takeover in Asia Pacific this year and the largest ever in Australia. It is also the largest transaction in the real estate sector, since Lehman Brothers Holdings sold an apartment ownership company for $16 billion in 2013.

The decline and restructuring of the shopping mall sector is something we’ve been following closely, for example, in the series “Dead Mall Stalking – One Hedge Fund Manager’s Tour Across Middle America”, in part 1, part 2 and part 3.

In October, we noted with incredulity the logic-defying strategy of General Growth Properties.

So what do you do when your business has entered a period of secular decline due to changing consumer trends which has created an environment of massive oversupply and no pricing power?  Well, if you're the once-bankrupt commercial REIT, General Growth Properties (GGP), then you build a brand new $525 million mega-mall and make the problem even worse. 

Fortunately the combination of Unibail and Westfield, which will create the global leader with 104 properties, makes strategic sense. Indeed, the deal fits with Unibail’s strategy of high-grading its portfolio in recent years. The company has been divesting its smaller and less dominant properties across Europe, reinvesting the cash in larger malls which it hopes will be more resilient to the growth of online shopping. The plan to sell 3 billion euros worth of European malls will be unaffected by the Westfield transaction. Bloomberg Intelligence analyst, Sue Munden, who we know as a sensible commentator on the commercial property sector, had this to say on the deal.

“This is a combination of two of the best-in-class mall operators in the world…They will become a dominant player, have the best relationships with retailers and therefore be best placed to create the malls of the future.”

According to Unibail’s CEO, Christophe Cuvillier, "The acquisition of Westfield is a natural extension of Unibail-Rodamco’s strategy of concentration, differentiation and innovation…It adds a number of new attractive retail markets in London and the wealthiest catchment areas in the United States."

Unibail stated that the deal should lead to annual synergies of 100 million euros per year and will be earnings accretive in the first full year of consolidation. Speaking to Bloomberg, one analyst thinks Unibail is overpaying.

“Our first take is that we are not over-excited about the price -- Unibail is buying at an implied initial yield of below four percent,” said Peter Papadakos, an analyst at Green Street Advisors in London. “If you think about where cap rates and yields are going in the U.S. and the U.K., which we think will be stable to upwards, the pricing is aggressive.”

Westfield was founded in 1959 by Frank Lowy, now billionaire Sir Frank Lowy, with one shopping mall in Sydney suburb. The Lowy family will retain a shareholding in the enlarged group. The group was split in 2014 with the UK and US assets retaining the Westfield name, while the Australia and New Zealand assets were spun-off into Scentre Group, listed on the Australian Stock Exchange.

Quoted by the Financial Times, Sir Frank said “we started small but we took Westfield to the world,” adding it was the right time to sell given Unibail-Rodamco were offering a good price to shareholders, and given the pressures in the global retail industry… Sir Frank said his family, including his sons Peter, Steven and David who have all worked closely with him, wanted to change their roles in the world by moving from being executives to becoming investors.

Lowy Senior,, now 87-years old, will chair a newly created advisory board in the merged company. Given the success Lowery had in building his company and the timing of his sale, we suspect that Unibail will benefit from his retail savvy going forward. They might need it. We get the Unibail strategy of creating a global leader with malls located in the “best” cities, as strategies go in this sector, it’s probably the only one that has a chance of success given the strategic challenges. Nonetheless, it’s not going to be easy, as even Unibail’s CFO Jaap Tonckens acknowledges.

“We’re going into London, we believe it’s a global city and will be fine” despite the slowing U.K. economy, Tonckens said. “Will it be choppy? Probably.”

Yet for all the giant numbers in the tens of billions floating around this, Jeff Bezos has one phrase that summarizes them best: pocket change.


PT Tue, 12/12/2017 - 09:21 Permalink

When is Amazon finally going to kill the price of land for once and for all?No no no no no no no ... can't admit the land is over-priced.  Must keep land prices UP at all costs.  Must protect "values" on Asset side of ledger at ALL COSTS!!!!!  Cannot admit to the Ponzi .... Disclaimer:  PT does not use Amazon.  PT likes to walk into physical shops, look at real goods for sale, choose which one he wants and then pay for it and walk out of the shop with goods in his arms.  PT even prefers buying books from physical BOOKSHOPS, even if the person in the bookshop simply buys the book on-line, slaps on a margin and charges PT that higher price.  PT understands he is probably going to lose his fight but does not care.  PT likes and uses real shops.  PT understands why not many people think like he does but PT sees those people actively creating their own misery.  After decades of the real-estate rip-off impoverishing the entire globe, it will be nice IF/WHEN the real-estate scam is exposed for the Ponzi it is and collapses under it's own filthy bloat.  Unfortunately, the scam that replaces it will only be even more hellish.  Most people haven't figured that out yet.  People have not figured out that the jobs and margins that Amazon kills is THEIR OWN.  People will still be crying "Supply and Demand" when real estate prices are still sky high even though 90% of the shops are empty."Sell everything you have and give the money to the poor, and then follow me."  - PT is still waaaaaaaaaaaaaay too wussy to follow that advice but every day it appears the more sensible thing to do.

PT william114085 Tue, 12/12/2017 - 10:28 Permalink

114085???  After all these years?  I thought it would be much more.  Not even a blip.errrr, per day?  Per year?  Per second?  Maybe that's what the problem is.Like I said, I understand why others choose to live differently.  But I do wish they could use the extra brain cell.  On the other hand, I do wish real estate was forced to return to its fundamental value and if web-shopping can't do it then nothing can.  What to do, what to do ....

In reply to by william114085

83_vf_1100_c PT Tue, 12/12/2017 - 14:33 Permalink

PT fails to get the psychology 101 joke.PT enjoys driving 100 miles visiting 10 different stores and dealing with colorful low IQ part time employees to find that exact widget he wants. PT wastes gas and time but feels somehow morally superior by paying more.1100 groks what PT is saying but the world is changing. As the plow horse lost its job to the tractor so goes the retail worker. Amazon, eBay et al have them beat on too mant metrics. Methinks people with money to spend are tired of competing with the dindu thugs and other low IQ flotsam that hang out in malls.

In reply to by PT

PT 83_vf_1100_c Tue, 12/12/2017 - 19:44 Permalink

No, PT didn't read the other guy's name properly.When you ride an awesome motorcycle (or even if you have a decent car and drive it properly), you don't mind driving 100 miles - as long as you don't get "caught" but PT doesn't have to drive anywhere near that far to get what he wants.At least I can yell at the low IQ staff, or wander next door to the high IQ staff.You think you got the high IQ staff because they live on the other side of the world where you can't yell at them?No dindu thugs in my area.  Perhaps you should move.Everything works until it doesn't.  I told you so.  In advance.  Now I don't have to tell you again, though we both know you won't remember anyway.Yes, I know the world is changing.  You can clearly see that in my previous comment.  It will all be good fun until it isn't.  Then it will be too late.  But entirely predictable, as night follows day.  Enjoy your time in the sun.  I figure you still have a few years left anyways.

In reply to by 83_vf_1100_c

PrivetHedge Tue, 12/12/2017 - 09:45 Permalink

One has to wonder how much money there is to suck out of the retail sector.Because essentially that's the only reason you'd take over a mall, to suck the money like a big fat parasite.

Blue Dog Tue, 12/12/2017 - 10:08 Permalink

Amazon isn't a mall killer. Amazon is only 4% of all online retail sales. Remember when Bill Clinton's slogan was, "It's the economy, stupid."? Well, now "It's the imploding economy, stupid."

itstippy Tue, 12/12/2017 - 10:23 Permalink

Unibail-Rodamco is focused on high-end malls in large, thriving urban areas that have dense populations of high income consumers.  Real estate is extremely pricey in these areas, so large existing malls are attractive properties and have built-in retail "moats" - competing retailers can't build next door.  Their strategy may be successful.Malls elsewhere did very well for several decades, but had no "moat" are now surrounded by competing big box retailers and chain restaurants.  The two malls in the city closest to me ("West Towne Mall" and "East Towne Mall") are no longer the draw they were.  They're surrounded by Dick's Sporting Goods, Home Depot, Menards, etc.  Customers go to these retailers instead of to the mall.  Afterward they eat at one of the nearby chain restaurants. Customers' tastes have changed; they have no desire to walk for miles in the Mall carrying shopping bags and enjoying the "shopping experience".  They want to buy some cheap crap at Home Depot using an easy-to-push shopping cart, eat some bland fatty salty crap at Chili's, and grab some Dunkin' Donuts on the way home.  The overall girth of these customers makes me doubt that they're even capable of walking around a Mall carrying shopping bags anymore.  They don't put a lot of effort into their shopping wardrobe either, since they care nothing about the "shopping experience" and dressing up is not necessary to fit in at a warehouse-style store or a casual dining restaurant.

itstippy fajensen Tue, 12/12/2017 - 11:31 Permalink

Unibail-Rodamco is focused on upscale malls that cater to customers like you.  Their business model may work; upscale customers are willing and able to pay a premium to shop for quality merchandise in a classy climate-controlled setting.  Most of my retail purchases are made at Farm And Fleet.  If they don't have it, I probably don't need it.  The Unibail-Rodamco malls aren't targeting my demographic.  They don't stock dungarees and thermal underwear and motor oil.  Unibail-Rodamco malls are for buying fancy stuff like dress shirts and slacks and wingtip shoes, and luxury items like a tooled leather cigarette case, a really good pair of polarized sunglasses, or a Beretta gentlemans' pocket knife.  These are items you won't find at the low-margin-high-volume big box stores because the inventory costs are too high.  I shop for this type of thing once or twice a year, and when I do I dress and act more civilized, to Mrs. Tippy's great joy.

In reply to by fajensen

Stan522 Tue, 12/12/2017 - 10:25 Permalink

LOL.... Let the frogs buy it.... Brick and mortar has already seen its best day.... This will hang around their necks like an anchor....!

ToSoft4Truth Tue, 12/12/2017 - 10:29 Permalink

I've got good news.  Yesterday I was in Walmart perusing the Made in USA bake-ware.  Lo and behold, "Merry Christmas" signs were plastered everywhere. Especially by the toys.  Jesus will help the malls too in good time. 

GRDguy Tue, 12/12/2017 - 11:11 Permalink

Still more consolidating one plantation into another, Fewer people controlling larger plantations.They're bigger than governments.You'll see, when Monsanto merges with Bayer.

gdpetti GRDguy Tue, 12/12/2017 - 11:21 Permalink

Yes... I remember reading this scenario in the scifi setup for that 'Red/Blue/Green Mars' series or whatever it was called... the M&A of most corporations into one for each industry.... the end of the OWO, and setup for the NWO.. further and further consolidation.As for these malls, anything you have to wear is what they should focus on and even then, in major metro areas... the trouble spots are those on the edge of cities etc...

In reply to by GRDguy

koan Tue, 12/12/2017 - 11:19 Permalink

I wonder what they have planned for these malls, in this day and age, where an app gets McDonlads delivered why would I go to a mall?To participate in a gang shooting? Or perhaps to be disrespected by the 3rd world counter help, hard to say there's so much to offer in the modern mall. /sarcasm

I Write Code Tue, 12/12/2017 - 11:22 Permalink

One neareby mall built a 3-level extension some years ago.  If you wanted to get to the third level, you had to use an escalator at the east end to go from 1 to 2, and the walk clear across the mall (well, just about 100 yards) to the west end to go from 2 to 3.  Enforced "shopping experience".  Guess what it never worked and was redesigned years ago.Westfield has most of the malls in southern California.  Always wondered how that could be a good deal for them.  They've been pretty much invisible as owners, outside of putting up their Westfield signs outside all the malls, which is only confusing to consumers.  "Meet me at the Westfield mall"?  Which one?So now they'll be owned by le Francais?  What does that come to? More cheese shops, dog poop everywhere, and a Muslim riot once a month?

oncemore Tue, 12/12/2017 - 11:29 Permalink

Jew from Prague against a jewyork Jew.A brute fight.Lowy is that bastard, who profited with Silverstein on 911. Shall we get a mandatory reading of Koran in those french-jewish mold.

homebody Tue, 12/12/2017 - 11:59 Permalink

Useless retail malls could be used in a great way.Put solar on the roof, subdivide into apartments, raised bed planters for gardening on the parking lot, a couple of greenhouses, a local farmer's market and common kitchen for those that need assistance or to learn cooking skills, a walk-in clinic, a daycare, security, personal services like barber shop etc, skylights in corridors for natural light, ....Low income family housing - contribute labor for cleaning and food production - no drugs or alcohol - iron clad eviction policy.But who am I kidding - welfare is much easier for the lazy maggots.  

D503 Tue, 12/12/2017 - 12:55 Permalink

When people realize the social function the mall provided, before social media existed, was a dependency for the mall's success they will finally conclude that online shopping was a mere supplication to market demand rather than the replacement. When one can chat with a friend from home, without the car ride, without the threat of violence, without the discomfort of the presence of dissenting opinion in politics, ethics, or aesthetics, acquiring goods with the same model becomes second nature.

GreatUncle Tue, 12/12/2017 - 13:11 Permalink

Poitless ... if you are tapped into US government handouts and P2P like amazon you ain't got a chance.Although it is funny, you see all those local councils in the UK and guess it will be the same in every nation applying business rates to generate tax revenue on non-existant sales.Mwhahahaha ... UK high street is dead in the water TBH and even online trading is going to be next to impossible if it is not on Amazon.The ultimate corporate stitch up.

JustPastPeacefield Tue, 12/12/2017 - 15:18 Permalink

Back in the late 70's and early 80's I used to visit the regional mall around me. It was the thing to do. Back then, it was 98% White. Today, not so much. Different vibe. Different culture today. And then there was that shooting last year. Any guesses?Occasionally I stroll through the very high-end mall in Boston on my way from here to there. Beats walking outside in this weather. Lots of wealthy Chinese looking for their brand names with daddy's credit card. Ok. Whatev. And then I saw 2 guys walk right into a Jimmy Choo store, grab about 15 high-end bags, and run out. Nobody tried to stop them. This ain't Texas. Any guesses? Any wonder people shop from home now? 

StreetObserver Tue, 12/12/2017 - 15:51 Permalink

Some fightin' words for Americans: "I'm not paying that price for some chink garbage!"... O.K., if you are a sensitive type who is politically correct, try this version: "I'm not paying that price for some slave child labor third world sweatshop globalized crap!" Try this on the merchant: "How about a 75% reduction, I'd pay that in cash right now." I'm hearing more and more people hooting and laughing out loud at overpriced retail merchandise. For example, I was in a luggage store and wanted to buy a carry on. "Show me your best carry on..." "This one" "How much?" "$478" "It's made in China!" "Oh, it's designed by a German company and they manufacture it to strict specifications..." "Can I pay for it in Yuan? Didn't think so. How much is your least expensive carry on-yeah, I know, it's made in China..." "$245" "See you later" As I walked out, the couple waiting to talk to the guy asked about some picnic carriers. The woman almost shouted when he showed it to them; "I'm not paying that price for this!"   I ended up getting a decent Chinese made carry on for $69 from Costco.