This French Billionaire Could Get a Half-Win on Shopping Malls
(Bloomberg Opinion) -- A new round of lockdowns in Europe is bad news for Unibail-Rodamco-Westfield’s mall business, but it could help boss Christophe Cuvillier drum up support for a 3.5 billion-euro ($4.1 billion) rights offer to ride out the pandemic.
Cuvillier is trying to convince holdouts that an immediately stronger balance sheet is the best protection after a 30% drop in adjusted earnings per share in the nine months through Sept. 30. It’s a view shared by a rising number of sell-side analysts worried about Unibail’s 24 billion-euro net debt pile.
Still, even if pressure is increasing for investors to approve the capital increase when they gather virtually next week, Cuvillier’s activist opponents — telecoms billionaire Xavier Niel and former Unibail CEO Leon Bressler — have reason to hope they can wield influence over the strategic direction of the company, whose fall from grace isn’t all down to Covid-19.
Niel and Bressler, who are campaigning for three seats on Unibail’s board, have built a credible case arguing that Cuvillier’s management team and debt-laden expansion in the U.S. and U.K. — chiefly due to the 2018 deal to acquire Westfield — are to a large extent responsible for the company’s vulnerability to the pain of a global pandemic. Covid-19 may be a once-in-a-generation crisis, and Unibail isn’t the only property developer to be raising capital in this bleak environment, but its epic tumble stands out.
Unibail’s market capitalization has shrunk about 80% since the end of 2017 to 4.8 billion euros and its debt metrics are worse than those of peers. Hedge funds have raced to bet against the stock, adding to pressure from lenders and ratings agencies. The company overpaid for Westfield, and is suffering for it.
Even more awkward, Guillaume Poitrinal, Cuvillier’s predecessor, has publicly thrown his lot in with Niel and Bressler.
While investors may yet approve a capital increase, they won't do so gladly. Unibail stock trades at an egregiously steep discount of 80% to book value, so a share issue threatens heavy dilution. Usually, shareholders would expect to see some governance reform in return for giving their support.
That could pave the way for a half-victory of sorts for Niel and Bressler. Proxy adviser Institutional Shareholder Services Inc. has recommended shareholders approve a potential capital increase, but with a delay to allow a rethink with activist input in the boardroom. That might open the door to some key changes in the plan proposed by Unibail’s management. For starters, the size and timing of a cash call.
Unibail says it has access to credit lines and cash worth 12.5 billion euros, which would cover about two years’ worth of refinancing needs. That suggests some freedom to wait a little longer, or sell more assets, before soaking investors. Cuvillier has hit back at the notion he’s going too fast — “We’re not fools,” he told analysts — but bond markets ultimately look awash with money.
While Unibail has said all options are open regarding its Westfield assets in the U.S., more voices at board level might accelerate such decisions. And in a post-pandemic world, having a tech-savvy billionaire like Niel on hand to help reshape the mall experience would surely be useful.
A lot can happen in a week, and there’s a reasonable chance that the coronavirus outbreak will require not one but several debt-cutting plans. Even if they don’t halt a capital increase, Niel and Bressler may still have their voices heard.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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