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Breakingviews

Breakingviews - Unibail activist riot leaves leaky roof exposed

People walk by Westfield shopping centre in Shepherd's Bush, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 26, 2020.

LONDON (Reuters Breakingviews) - Unibail-Rodamco-Westfield’s shareholder revolt could take the shopping mall operator from the frying pan into the fire. French billionaire Xavier Niel and the French landlord’s former CEO Leon Bressler are attempting to block its 3.5 billion euro rights issue. But their counter-plan of flogging the U.S. business and focusing on Europe could create even bigger problems.

“Refocus not reset” was the message from the activist consortium led by Niel and Bressler on Thursday. In a five-page letter, the duo unveiled a plan to scrap a dilutive rights issue and instead raise cash by selling all of the 6 billion euro landlord’s American shopping malls. Aggressive expansion, including the Westfield acquisition, have left it saddled with 24 billion euros of debt just as the coronavirus struck. The activists also want three board seats.

The rebels’ plan has a certain logic. Unibail is not the leading force in American shopping malls, where footfall has been slower to bounce back after lockdown than in Europe. Even selling the U.S. assets at a 50% discount to their latest reported values would raise 11 billion euros, enough to pay off nearly half its debt. They also think that by focusing entirely on Europe, Unibail will benefit from its greater scale, and be better able to invest in digital capabilities.

The strategy, however, could create problems in the short and long term. Exiting the U.S. may make sense, but without the rights issue Unibail would be a forced seller and have little negotiating power with buyers. Focusing just on Europe is also risky. While footfall figures are back to near pre-pandemic levels, Covid-19 infections are soaring across continental Europe and governments are considering another round of lockdowns. Moreover, being left with a purely European business would leave Unibail more exposed to the rise in online shopping. Online sales in continental Europe accounted for just 9% of the total retail spending in 2019, less than 17% in the U.S.

CEO Christophe Cuvillier may be able to fend off this attack. The rebels currently only hold 4% of Unibail shares. He can argue that a rights issue is a necessary step to protect the group’s credit rating and see it through the likely difficult years ahead. Given Unibail’s challenges, playing it safe is the least bad option.

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