Hi,
In the current low-yield environment I imagine lots of firms look to corporate consolidation through M&A in hopes of generating shareholder value and improve stock performance. I have little to no experience myself doing M&A, and would really appreciate if someone with more experience could elaborate on what they are looking for evaluating M&A-opportunities. I realize every deal is different, but:
Why does a company like Unibail-Rodamco buy Westfield? In the initial / idea phase - why does a deal make sense and what are you looking for (first) to support that idea? What are some of the key value creators?
Silver bananas will most definitely be awarded for good and insightful answers.
- Bodacious
Taking a very high level look at that deal in particular some of the supposed areas of added value were:
1) Strategic ownership of flagship assets. This is helpful when dealing with tenants. Unibail-Rodamco can now offer retailers space across Europe and the US. Furthermore, it is far easier for Unibail-Rodamco to bring tenants to the US and vice versa, in the hope of creating demand in their assets.
2) Synergies. Lowering the cost of debt, reducing G&A (Westfield Management were well paid, the rumour is the Unibail-Rodamco Management will keep the corporate jet though).
3) Brand. Unibail-Rodamco centres will all be branded as Westfield moving forward creating a cohesive brand for all the assets, this is helpful for branding and giving assets a premium image.
4) Timing. On that deal Unibail-Rodamco believe with what’s current going on in retail and the de-rating of many of the mall reits, this was a once in a decade opportunity to gain access to top quality assets and some future development sites.
I’m currently in the airport waiting to go backpacking in Colombia (much more interesting that reits), so cant give much more detail unfortunately.
What I will say though is I wasn’t a fan of the deal. I think Unibail-Rodamco overpaid for Westfield, there are some real complications with the deal. Extra tax costs, large amounts of capitalised interest on the BS of Westfield from development. All this means that the last time I saw Unibail-Rodamco Management their comment on future eps/ffo was ‘we aren’t sure, there are too many moving parts’. Further to this, I think Westfield was a well run company beforehand and while Unibail are perhaps best in class, there’s little value add here.
In my view M and A deals in reits make sense when there’s a large disconnect between public and private markets to its cheaper to buy the company than the assets. This deal didn’t strike me at being valued like this.
Furthermore, much of supposed syngeries can often not materialise. Unibails NAV will also have a level of goodwill in it due to the deal which investors never like.
Overall the general rule is that M and A deals can often not add value for the acquirer but largely are a good deal for the acquired.
Hope this gives you some ideas, as I said that was all very high level! I’d recommend going into Westfield and Unibails IR websites and looking at the deal presentations and maybe unibails Half Year presentation too.
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