Federation board fires CEO

After steering Federation Centres (ASX: FDC) through its merger with Novion, Steven Sewell’s reward was the sack.

Two months after completing its merger with Novion Property Group, Federation Centres (ASX: FDC) surprised investors earlier this week by announcing the sudden departure of ceo Steven Sewell. His replacement is former Novion ceo Angus McNaughton.

Federation shares have declined 5% since then, suggesting investors aren’t happy with the change.

Putting aside potential corporate governance and legal issues – for instance, Steven Sewell was named in the merger documents as the ceo of the merged group – is the change really as bad as the share price decline suggests?

Despite Federation being the acquiring entity and the merged group keeping the Federation name – although soon to be rebranded as ‘Vicinity Centres’ – Novion contributed around two thirds of the assets to the combined group. These included half ownership of trophy assets Emporium Melbourne and the Chadstone Shopping Centre and are superior to Federation’s collection of smaller shopping centres.

While Steven Sewell performed strongly as head of the old Federation, Angus McNaughton also had a fine record in charge of the much larger Novion and this bodes well for the future of the merged group.

But while I think Sewell has been treated harshly, what really convinces me that investors are overreacting is the opinion of billionaire John Gandel, the biggest shareholder in Federation and also owner of the other half of Chadstone. Gandel has been publicly supportive of the board’s decision and generous in his praise of McNaughton.

It’s always smart to follow the money and Gandel has a few billion reasons to make sure Federation has the right ceo. If he’s happy to put his Federation investment in McNaughton’s hands, then other shareholders should be too.

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