Shopping centre giant Unibail hits back against activists ahead of key vote

The chief executive of Unibail-Rodamco-Westfield, Europe’s largest shopping centre owner, is confident that shareholders will back plans for a controversial capital increase despite efforts by a French billionaire and the property group’s former boss to block it.

Christophe Cuvillier has been pressing his case with investors since telecoms tycoon Xavier Niel and real estate investor and former Unibail chief executive Léon Bressler unveiled their activist campaign to thwart the €3.5bn equity increase this month.

Together Mr Niel and Mr Bressler’s Aermont Capital own a 5 per cent stake in Unibail, and have requested three board seats at the November 10 shareholder vote.

The activists have proposed that Unibail sell its US property portfolio within three years to reduce the group’s heavy debt load. However, Mr Cuvillier told the Financial Times that such a plan was too risky and slow given that there were currently “no acquirers and hardly any financing for such assets” because of the Covid-19 pandemic and broader concerns over the sector’s future as ecommerce booms. 

“We are pretty confident that the shareholders will vote in favour of the capital increase, realising that it is absolutely crucial to fix the balance sheet of the company in a decisive way . . . rather than leave it in totally unknown territory, wishing for a better future and betting on disposals that might never happen,” Mr Cuvillier said.

“We believe we have to do what’s in our power today, even if we recognise it’s painful,” he said of the heavily-dilutive plan to shore up the balance sheet

The company secured an important ally on Wednesday when influential proxy advisory firm Glass Lewis recommended that shareholders not only vote for the capital increase, but also reject the activists’ bid for board seats. Glass Lewis called the activists’ proposal to divest the US business “an excessively risky gambit” given the “considerable challenges facing the company and the retail market as a whole”. 

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Proxinvest, a smaller French proxy adviser, also recommended shareholders vote for the capital increase, although it advocated for Mr Niel to join the board. 

Institutional Shareholder Services has yet to issue its recommendations. Many mutual funds, especially those in the US, rely on the opinions of such proxy advisers to guide their votes.

Unibail needs to get more than two-thirds of the votes in favour of the share sale, while the activists only need just over half of the votes to get on the board.

A spokesperson for Mr Niel and Mr Bressler played down the importance of the advice issued by the proxy advisers, saying they were “ill equipped to assess such an unusual capital increase and also fully supported the disastrous Westfield transaction.”

The battle at Unibail has been a rare example of members of France’s usually cozy business elite adopting the tactics of aggressive activist hedge funds. Deepening the drama is that Mr Bressler ran Unibail for 14 years until 2006, and his successor, Guillaume Poitrinal, who was chief executive from 2006 to 2013, has also publicly backed the campaign. 

In a series of tweets this week, Mr Poitrinal said there was “no worse time” for Unibail to do a capital increase, slamming it as “irresponsible” given the company’s cash reserves and available credit lines of almost €13bn. 

Asked how he was handling the public criticism from his predecessors, Mr Cuvillier dismissed it as classic tactics used by activists. “I just focus on the work. I can tell you we’ve had many hard discussions within the senior management team and with advisory board and we think our plan is the best one,” he said. 

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He added that Unibail did consider alternative scenarios to lower its debt, including the one proposed by the activists, before settling on the approach in September. It included the capital increase, €4bn in planned asset sales in Europe, scrapping the cash dividend for two years, and other cost-cuts.

Mr Cuvillier said he had not had any contact or meetings with the activists. “I have a huge respect for Mr Bressler,” he said. 

One thing on which both sides agree is that Unibail has too much debt, which was mostly incurred in the $25bn acquisition in 2018 of Australian mall operator Westfield. The deal brought it the Westfield brand and high-end shopping centres in London, Europe and the US, but it has proven value destructive. The stock has fallen 80 per cent since it agreed on the deal.

The debt stands at around €24bn, giving Unibail a net debt-to-ebitda ratio of 12.7 times for 2020, according to Bloomberg data. That is far higher than smaller French competitor Klépierre at 10.2 times for 2020 or US player Simon Property Group at 7.3 times.

Shopping centre owners have faced a bruising few years as online competitors have taken a growing proportion of sales. Unibail’s centres have been less affected than some peers, such as Intu and Hammerson, whose malls are predominantly in the UK, but the company’s share price had nonetheless halved in the five years leading up to coronavirus outbreak in Europe. 

With footfall still down by 25 per cent to 50 per cent across Europe, Moody’s anticipates that rental income for shopping centre owners will continue to slump over the next 18 months. The rating agency said on Tuesday that it expected the credit quality of Unibail, Hammerson and Klépierre to deteriorate as a result.

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