Real Estate

Unibail/Xavier Niel: Cuvillier’s travails

Running a vast shopping mall business in a pandemic is difficult enough. It just got even harder for Christophe Cuvillier, boss of Unibail-Rodamco-Westfield, which is based in Paris. Telecoms billionaire Xavier Niel wants to block a massive €3.5bn rights issue, part of Unibail’s plan to reduce debts by €9bn, just over a third. This will look like cavalier interference to Mr Cuvillier. Worse, Mr Niel may actually have a point.

Yet another entertaining skirmish between French tycoons presages a broader battle across business. Coronavirus-induced drops in earnings will force many companies to shrink their balance sheets. That will leave investors in everything from equity to senior debt scrapping with management — and each other — over the remaining value.

Mr Niel has bought a 4.1 per cent stake in Unibail with Léon Bressler, a formidable former boss of Unibail. They oppose a rights issue plan that favours bondholders. They justifiably argue there is a better way. The shares jumped 11 per cent in response.

Fresh cash is needed to clean up mistakes made on Mr Cuvillier’s watch. The acquisition of Frank Lowy’s Westfield group for $25bn in 2017 was poorly timed and expensive. Since then, the market value of Unibail has dropped over 70 per cent.

Under Mr Cuvillier’s plan, €4bn of disposals would supplement the rights issue to help maintain URW’s investment grade credit rating. Total debts would fall from €24bn to €15bn.

But unlike rival mall operators such as Hammerson of the UK, which conducted its own rights issue in September, liquidity is not a pressing concern. Unibail estimated its reserves at more than €12bn in the first half, including €3.4bn of cash.

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That has emboldened Messrs Niel and Bressler to propose scrapping the rights issue and selling off US assets instead.

The disposal would not be easy in the current market. Malls in the US have been in decline for longer than in Europe, with even lower valuations. A book value of €14bn for Unibail’s US assets is optimistic. A price closer to €10bn would be more realistic, thinks Green Street a research group. But a sale would reduce leverage usefully. Unibail’s loan-to-value would fall to a tolerable 30 per cent.

Mr Cuvillier’s actions suggest he wants to protect a big chunk of Unibail’s enlarged portfolio when more radical surgery is required. Minority shareholders should back the Niel/Bressler plan instead.

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