Westfield Agrees to $15.7 Billion Takeover by European Rival -- 2nd Update

By Mike Cherney in Sydney, Noemie Bisserbe in Paris and Saabira Chaudhuri in London Features Dow Jones Newswires

Westfield Corp., the Australian operator of marquee malls from California to New York's World Trade Center, agreed to a $15.7 billion takeover offer from European shopping-center giant Unibail-Rodamco SE.

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The deal would consolidate two of the world's biggest mall operators at a time when brick-and-mortar retailers scramble to adapt to a tumultuous shift toward online shopping. Until recently, the pressure has been focused on mall operators in smaller, less well-heeled markets.

But Westfield--with is portfolio of high-end malls in high-spending locales--has also been feeling the heat. Its shares were down 9% this year before the disclosure of the deal Tuesday.

Westfield has been reducing its retail exposure for years, venturing into residential and entertainment properties. Still, Tuesday's decision represents an acknowledgment from one of the industry's biggest players of the formidable challenges ahead. It could also herald more deal making, as landlords seek to add scale and cut costs.

The transaction also caps the decadeslong career of Frank Lowy, Westfield's chairman. A Holocaust survivor, he started in the business with a deli in a western Sydney suburb. Mr. Lowy, who fought in the Israeli war of independence before moving to Australia, will retire as chairman, and his sons Peter and Steven will step down as Westfield's co-chief executives.

The Lowys said they saw the transaction as an opportunity to recover value for shareholders. The offer valued Westfield at an equivalent of 10.01 Australian dollars (US$7.55) a share, a nearly 18% premium over Monday's close.

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In Westfield, Unibail executives said they saw an opportunity to boost the company's portfolio of so-called flagship centers that tend to have more amenities, like movie theaters, and are located in more affluent areas. Westfield competes in the U.S. with the likes of Simon Property Group Inc., CBL & Associates Properties Inc. and Washington Prime Group.

Unibail operates malls across Europe, including the Forum des Halles and Les 4 Temps malls in Paris and Gropius in Berlin. The deal will give it access to London, where Westfield operates two big malls. Westfield and Unibail have little geographic overlap, which could ease any antitrust issues.

The deal comes amid big changes in the retail landscape in the U.S., and to a lesser extent Europe. More consumers are shopping online, abandoning the malls and department stores they once frequented. As foot traffic dries up, many brands have been closing stores after years of flooding malls, smaller shopping centers and strip malls with outlets. Department stores, once reliable mall anchors, have closed hundreds of locales.

Amid that retreat, mall operators have scrambled for tenants and novel ways to attract shoppers-- like wooing gym chains, or creating community spaces. Retail landlords have been slashing rents, while property owners and managers have tried to unload assets.

Westfield in recent years had tried to stay focused on the higher end of the market, selling off some of its lower-quality assets in 2015. The company says 17 of its 35 malls are considered flagship properties, comprising more than 80% of its portfolio value. These are located in places like Century City and Culver City in the Los Angeles area, Annapolis, Md., and the Garden State Plaza in New York. These types of properties have been more successful in keeping shoppers in the age of e-commerce, analysts say.

Westfield's $1.4 billion World Trade Center mall opened last year. The company expected brisk pedestrian traffic from tourists and the thousands of office workers in the mixed-use complex. But the project has faced challenges amid the choppy retail environment and disappointing traffic.

Unibail Chief Executive Christophe Cuvillier will lead the combined group, and the company plans to rebrand its flagship shopping centers in Europe under the Westfield name.

The deal follows a series of big consolidation moves on both sides of the Atlantic as industry dynamics shift. Another giant U.S. mall owner, GGP Inc., received a $14.8 billion bid last month from real-estate company Brookfield Property Partners LP for the roughly two-thirds of the company it doesn't already own.

GGP owns around 125 high-end retail centers around the U.S., including Tysons Galleria near Washington, D.C., Glendale Galleria outside Los Angeles and Chicago's Water Tower Place. The company emerged from bankruptcy in 2010 with backing from Brookfield and other investors.

Earlier this month, British shopping mall owner Hammerson PLC agreed to acquire rival Intu Properties PLC for GBP3.4 billion ($4.53 billion), in a deal that would create a pan-European property giant with a GBP21 billion portfolio of retail and leisure sites.

The Lowys will remain partially involved in the combined entity. Peter Lowy will serve on the combined company's supervisory board, and Frank Lowy will chair a newly created advisory board. The Lowys will also retain a $1 billion investment in the combined company, a 2.5% stake, they said.

Write to Mike Cherney at mike.cherney@wsj.com, Noemie Bisserbe at noemie.bisserbe@wsj.com and Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

December 12, 2017 09:12 ET (14:12 GMT)