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 the 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.