Melbourne billionaire John Gandel, the kingmaker in a $22 billion merger proposal that would create Australia’s third-largest listed property trust, has defended the deal saying it will create the foundations for an even stronger shopping centre giant.
“We think it’s the right thing for both sets of shareholders. We think its fair,” Mr Gandel told The Australian yesterday on the bid to merge Federation Centres with Novion Property Group. The merger, if successful, will see a company with a market capitalisation of $11bn and rank behind the Lowy family’s Westfield and Scentre groups on the Australian Securities Exchange.
“The Federation board made their decision, they approached us,” Mr Gandel said.
The 80-year-old has been in retailing all his life — his father founded the Sussan fashion chain — and has built his fortune partly on the back of the sale and mergers that started with his Gandel Retail Trust, each time maintaining interests in the new company.
His private Gandel Group owns a 21.6 per cent direct stake in Novion — the former Commonwealth Bank-run CFS Retail trust — and a first right of refusal over a parcel of Novion shares the bank still controls, taking his relevant holding to more than 27 per cent.
“It’s a little bit important to us,” Mr Gandel told The Australian, noting that when added to his half stake in Melbourne’s flagship Chadstone shopping centre — which Novion manages — the investment totalled about $3.8bn.
Together they represent Gandel Group’s single biggest investment. “You can’t find everything in a transaction,” Mr Gandel said. “We are creating a foundation for the future.
“We have always put other shareholders’ interests at least alongside and ahead of our own.”
While there has been some criticism on the proposed all-scrip deal, Mr Gandel said the benefits in tying together the two shopping centre owners and managers was compelling. Together Novion and Federation — the former Centro Properties — would control 102 Australian shopping centres worth about $22bn.
A merged group would deliver cost savings of more than $84m a year and have the potential to create more than $700 million of value, Novion and Federation said in their proposal.
“The $85m (cost savings) is pretty big dollars, even with the billions of dollars in this deal,” Mr Gandel said.
And it would have a board and management team that “would take half a lifetime to build”.
He acknowledged merger and acquisitions among listed property trusts are widely expected. The Federation-Novion proposal follows Dexus’s near $4bn takeover of another CBA-managed trust, Commonwealth Property Office Fund, last year.
“Everyone has been talking to everyone for the last year,” Mr Gandel said. “We couldn’t see the synergy with anybody else.”
However, he said he was not aware of any other serious proposal for Novion.
Mr Gandel, ranked ninth on the BRW Rich List last year with an estimated $4.08bn fortune, noted such a merger signalled a vote of confidence in the fragile retail sector.
“We have been in the industry — shopping centres — for 35 years. We’ve seen the ups and downs, and we believe shopping is here to stay. It is a recreation now and people are looking at it more and more that way.”
Mr Gandel, who would have two seats on the new board that will be led by Newcrest Mining chairman Peter Hay with Federation’s Steven Sewell as chief executive, said he expected a merged group to have a more “back to basics” approach, concentrating on the retail categories and also benefiting from a $2.5bn development pipeline. “It’s a good combination.”
He said he had no intention to exit and was likelier to invest further, given the option on CBA’s stake in Novion. No discussions had been held with CBA over the stake, he said. “CBA can do what they want, they could even vote against it (the merger) if they want.”
If the deal proceeds, Novion shareholders will own 64 per cent of the merged entity and Federation 36 per cent. Novion shareholders will vote on the proposal in May.
This article first appeared in The Australian Business Review