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Market Moves Signal Greenlight For Westfield Revamp

Two of the most important shareholder meetings of the year will be held in Sydney this Thursday when security holders in Westfield Group (WDC) and Westfield Retail Trust (WRT) meet to discuss and vote on the third restructure of the Lowy family’s shopping centre empire in a decade.

Last December, Westfield Group announced plans to merge its Australian and New Zealand shopping centre assets with those held by Westfield Retail Trust to create a new entity (to be called Scentre) with the international (mostly US, UK and Italian) assets left in Westfield Group.

Westfield Group chairman Frank Lowy spent last week doing media interviews and talking to major investors about the deal and its merits.

Westfield has already sweetened the deal to try and smooth the way to the deal’s approval.

He has been attempting to reassure investors that the $70 billion restructure of Westfield will not benefit the Lowy family over security holders.

Mr Lowy said last week that despite criticism from “a small vocal minority” he is confident the deal will get the green light from shareholders on Thursday.

The deal will probably go through because big institutional holders will prefer not to rock the boat.

That has been reflected in the recent rise in the prices of the securities of both companies.

Westfield Retail closed at $3.20 on Friday, down 1.5% for the week. Westfield Group eased 0.3% to end at $11.03.

Reflecting the rising level of confidence in the deal, the prices of both companies securities have risen sharply in the past month.

At Friday’s closing prices, Westfield Retail securities price is now just above the level before the split was announced.

Westfield Group’s share price is also back to the pre-split levels.

Some smaller investment groups are still opposed to the increase in gearing the deal will mean for Scentre, and the transfer of value back to Westfield Corporation for the management rights.

Under the original proposal, the net debt of Westfield’s Australia and New Zealand business was to be $7.1 billion. That was cut by $300 million in the change announced by Westfield earlier this month.

As a result, the net tangible ­assets for Scentre will increase to $15.28 billion, or $2.88 per security, from $14.98 billion, or $2.82 a security.

Scentre’s gearing will drop to 37.3% from 38.2%, which isn’t much of an improvement.

The change came despite the independent experts report describing the original deal as ‘fair and reasonable’.

In sweetening the deal Mr Lowy said earlier this month, “The transaction is now expected to deliver a 6.6 per cent ­accretion to Westfield Retail’s forecast 2014 FFO (funds from operations)”.

That is now estimated to be 21.75 Australian cents a share in the year ending December 31, from 21.5 cents in the earlier plan.

The Lowy interests obviously hope the slightly higher possible distribution, and the small fall in gearing will be enough to get the restructuring proposal approved on Thursday.

The move from Westfield and the Lowy’s didn’t address another concern – the $1.9 billion Westfield Retail securityholders will pay for Scentre’s management rights.

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