Suspense, tension and ASIC's Westfield question

Thursday’s dramatic and confusion-wracked developments at the meeting of Westfield Retail Trust security holders puts pressure on the Australian Securities and Investment Commission to intervene to try to restore order to the process that will enable the owners of the trust to determine its fate.

Ownership Matters’ Dean Paatsch has nailed the problem created by WRT chairman Dick Warburton’s decision to defer the vote on the proposal to merge WRT with the demerged Australasian operations of Westfield Group and adjourn the meeting of WRT security holders for up to a fortnight.

While there’s no doubt Warburton had the power to adjourn the meeting it creates a significant policy issue for ASIC.

As Paatsch pointed out on Friday, the current record date to establish those eligible to vote at the meetings is May 27. Yet WRT securities resumed trading on Friday and presumably will continue to trade right up until the meeting is reconvened. WRT today confirmed that the record date would remain May 27.

That, as Paatsch said, means that the security holders eligible to vote on the proposal at the second meeting may not actually own WRT securities at that time. Equally, those who acquire securities between Friday and whenever the second meeting is held won’t be able to vote.

Separating the ownership and voting rights isn’t good policy but, equally, trying to undo that outcome would create its own issues.

Had trading in WRT’s securities been suspended until the meeting reconvened the issue wouldn’t have arisen. The alternative, and no doubt one ASIC will give some serious thought to, would be to actually cancel the current process and re-restart it with not just a supplementary scheme document but a new record date.

The problem with that is that it would create an open invitation for those on either side of the debate about the proposal to go into the market to buy securities and their votes purely in order to improve their position at the next meeting -- it would actively invite and encourage manipulation of the voting. It’s one of those 'damned if you do, damned if you don’t' situations.

WRT’s Warburton really had no option but to adjourn the meeting once the Westfield Group annual meeting earlier in the day was told that its board had resolved to independently spin out and list its Australian assets if WRT security holders rejected the Scentre Group merger proposal.

While that option had been listed (among other options) in the scheme documentation for the deal, it is clear that at least some of the WRT institutional security holders believed that Westfield Group would alter the terms of the proposal (for the second time) rather than go down that route and create two separate listed vehicles with common ownership of the underlying shopping centre assets. That’s despite Westfield Group clearly saying that the terms were final.

The board decision on Westfield Group’s Plan B was relevant and material information for WRT security holders to consider before they voted on the proposal -- the Australian Shareholders Association agreed with that conclusion, even though it voted against the adjournment.

It would have been preferable that the Westfield Group decision had been made and disclosed a few days earlier to give both sets of security holders more time to work through its implications, but that didn’t happen.

In the circumstances, however, the adjournment wasn’t an unreasonable response by WRT directors to the new information (although there would have been less cynicism about the decision had the vote been running overwhelmingly in favour of the Scentre proposal).

The impact of the Westfield Group announcement of its fallback position may be regarded as coercive but, both to dispel any prospect of the deal being renegotiated again and to ensure both sets of security holders were fully informed, it is inarguable that the decision had to be disclosed to the market ahead of the meetings. The information was as relevant, indeed probably even more relevant, to Westfield Group security holders as it was for WRT security holders.

Whether the additional time that WRT security holders will now have to consider or reconsider their attitudes to the proposal produces a different result is an open question. The proxies at last week’s meeting were 74.1 per cent in favour -- narrowly but decisively short of the 75 per cent level required for it to proceed.

WRT’s largest security holders, UniSuper, has made it clear that its stance won’t change and that it remains opposed. It sees WRT as a yield-play and therefore would be unconcerned if the entity continues to trade at a discount to net assets, which would boost its yield.

Other investors -- the clear majority -- see the bringing together of the two owners of Westfield’s Australasia shopping centres and their management in one vehicle and their separation from the group’s international operations as strategically compelling.

The alternative of two competing vehicles, one with internalised management and a development tinge to generate superior growth but with joint ownership of the underlying assets, would be a messy outcome for both sets of security holders but particularly WRT’s, with their vehicle externally managed by a competitor entity and potentially one with significant leverage.

Between now and the next meeting, which will probably be held towards the end of next week, one would expect a fierce debate -- not just about the merits or otherwise of the Scentre proposal for WRT security holders, but the relative merits of the status quo versus a future in which WRT has to compete for investor interest against its former sibling.