DataRoom AM: Westfield makeover

Frank Lowy takes Westfield Group in a new direction, while Fairfax Media sends Stayz on a one-way trip.

One of the biggest corporate deals in Australian history will see Frank Lowy’s Westfield Group split into two – with separate domestic and international businesses. Investors have welcomed the move, which may see the international arm list offshore, but a leading ratings agency isn’t so sure.

Meanwhile, Dick Smith Holdings’ ASX debut fails to set the market alight, a big name investor backs Nine Entertainment, Fairfax Media offloads Stayz and Westpac Banking Corporation receives the competition watchdog’s tick for its Lloyd’s portfolio buy.

Westfield Group, Westfield Retail Trust, Frank Lowy

Frank Lowy has never been immune to making bold decisions and the latest, a major restructure of his shopping centre empire, may be the boldest yet.

The unexpected move to merge its Australian and New Zealand operations with the Westfield Retail Trust under the new name of Scentre Group is seen as the latest attempt by the Lowy family to distance its focus from Australia to international markets. That focus is understandable given the company’s local strength is such that growth prospects are tempered.

Meanwhile, the malls owned by Westfield internationally will be spun off through a new company called Westfield Corporation.

The deal undoubtedly sends a signal of international intent from Lowy and, with news of internal management at Scentre, it may be the beginning of the end for the externally managed property trust model.

The remarkable size of the deal is highlighted by the break-up of assets.

Scentre will own interests in 47 centres worth $28.5 billion and control centres worth $37.9 billion, while Westfield Corp will own interests in 44 properties worth $17.6 billion and control malls worth $27.6 billion.

Frank Lowy will chair the two businesses, though they will otherwise be run separately.

Westfield said both companies would be listed on the ASX, though The Australian reports a dual listing may be seen with Westfield Corp, with the New York Stock Exchange and London Stock Exchange in the mix.

The smart money is on a New York listing, however, given the company’s main expansion focus of late appears to be the US, the American economy is showing signs of recovery and Lowy bought a $13 million apartment in the Big Apple earlier this year.

Investors in Westfield Group welcomed the move – demergers are largely supported by investors – pushing the company’s shares 4 per cent higher yesterday. However, ratings agency Standard & Poor’s was less effusive, placing the credit ratings of both Westfield Group and Westfield Retail Trust on credit watch negative.

Should this lead to a downgrade it may have an impact on the plans.

It should also be noted that WRT shares fell slightly in a sign of which company investors see as the big winner.

Given the Lowy family sold out of WRT earlier in the year, one suspects it wouldn’t be the largest beneficiary. For investors it’s a simple case of follow the money and the name, with both the Lowy money and the Westfield name heading toward the international operations.

The massive deal has been viewed as another late year treat for bankers, with Morgan Stanley and UBS acting on behalf of Westfield Retail Trust and JP Morgan and Rothschild’s advising Westfield Group.

Fairfax Media, Stayz

Fairfax Media has offloaded holiday home rental website Stayz for $220 million to US-based HomeAway Inc.

Stayz, purchased by Fairfax for $6 million in 2005, was long rumoured to be on the chopping block as the media group attempts to shore up its balance sheet.

While turning $6 million into $220 million represents a great result, questions still linger about whether it is the smartest strategy. With traditional media facing severe headwinds, it appears strange to give up one of the company’s best-performed businesses – and a growing one at that.

Still, a few months ago reports suggested the website might recoup $150 million for Fairfax, so the end sale price appears a strong result.

For HomeAway, which was always considered a likely suitor alongside locally-based Wotif, it represents the second acquisition in the region this year. Last month, the US-based group acquired 55 per cent of New Zealand-based Bookabach Ltd, which also has operations in Australia.

It first entered Australia through the 2011 purchase of a rental property website from REA Group.

Goldman Sachs has previously been reported as the lead advisor on the deal for Fairfax.

IPO market, Dick Smith Holdings, Nine Entertainment, George Soros

The first day of trading in electronics retailer Dick Smith Holdings ended meekly after a strong start. Early in the piece the shares gained 6 per cent on strong demand, but after briefly retreating below listing price, the securities ended flat, at $2.20 a share.

It is the latest hint of IPO fatigue among investors, though the biggest test is likely to be the float of Nine Entertainment this Friday. The $2 billion float, which will raise $670 million, is the biggest private equity-backed IPO since Myer and the market will be paying close attention.

Billionaire investor George Soros is among the initial investors in the media group, according to The Australian, with Nine to go on market at $2.05 a share.

The company’s bookbuild was oversubscribed yesterday, though the listing price of $2.05 was below expectations and at the lowest point of the indicative range. It is perhaps a sign that its management team is desperate to have a strong first day’s trade and given the lower than expected price and oversubscribed offer, that appears a good bet.

Indeed, it would be a minor shock if the company didn’t at least start off trading strongly tomorrow, though its progress through the day will be worth watching.

The fact that a media group and a retailer – both facing significant structural headwinds – have received so much investor interest is, however, quite staggering.

Westpac Banking Corporation, Lloyds International

The Australian Competition and Consumer Commission has given the all clear for Westpac Banking Corporation’s proposed takeover of the Australian assets of Lloyds International.

The $1.45 billion deal involves the purchase of Lloyds’ Australian asset finance business, CFAL, and its corporate loan portfolio, BOSI.

Announced in October, the takeover is Westpac’s first significant spend since the $18.5 billion purchase of St George Bank in 2008. The deal is likely to again sideline it from the M&A sector in the near-term and came just a year after it first signalled its acquisitive streak was returning through the unsuccessful bid for 5 per cent of Hong Kong’s Bank of East Asia for around $400 million.

While the deal was not subject to regulatory clearance, there were nonetheless concerns the Australian Competition and Consumer Commission would oppose the plan given Lloyds, like Westpac, is a major player in the car finance sector. However, the competition watchdog’s chair Rod Sims yesterday waved through the proposal saying that Macquarie Group and ANZ Banking Group’s Esanda subsidiary both presented significant competition to the enlarged Westpac.

“The majority of motor vehicle dealerships in Australia will continue to have access to the competitive floor-plan finance offerings from a range of manufacturer-aligned financiers and non-aligned financiers,” he said.

“ANZ and Macquarie are likely to continue to constrain Westpac for the provision of floor-plan financing to dealerships, which do not currently have access to manufacturer aligned financiers.”

“In addition to Macquarie, a number of financiers and financial institutions were identified as appearing to be well placed to enter or expand to compete for the provision of floor-plan financing to motor vehicle dealerships, including those dealerships which do not currently have an affiliation with a manufacturer-aligned financier.”

Wrapping up

Saputo has revealed it has now received acceptances worth 13.6 per cent of Warrnambool Cheese and Butter stock though it is unable to process them on the basis of orders from the Takeovers Panel. The news shows the company has been getting strong take-up from shareholders, though it remains difficult to see how it can reach 50 per cent without the assistance of at least one major shareholder – Kirin Holdings, Bega Cheese or Murray Goulburn.

Finally, Carabella Resources has entered a trading halt ahead of a takeover from a Chinese company, according to the Australian Financial Review. Deutsche Bank has reportedly already purchased 11 per cent of Carabella stock on behalf of the unnamed Chinese group.

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