Were we too tough on Westfield chairman Frank Lowy when our heading suggested that he had experienced a spectacular fall from grace?
Or is the Westfield saga actually one of the first public repercussions from what is a largely unrecognised boom in the stock market -- the yield boom, which is exhibiting early characteristics of so many previous booms?
I don’t normally discuss headings in this way but a number of people have suggested to me over the weekend that even though the Westfield situation is a mess, to put all the blame on the 83-year-old chairman was too tough. And partly because I am an admirer of the long-term achievements of Frank Lowy I listened and began looking at the Westfield situation from an entirely direction.
We all know that investors are chasing yield but last week I attended a fascinating Eureka Report reader seminar where it became clear that this quest for yield was starting to create a boom that had all the characteristics of previous booms like mining, property and dot.com etc. Because central bankers are artificially depressing global yields, investors are prepared to pay an enormous premium for yield over growth and business development. By the time interest rates rise -- and that could be well into 2015 -- the premium for yield is likely to have reached crazy proportions and so we will experience a sharp fall in yield based securities.
I learned at the weekend that a number of the institutions saw Westfield Retail as a yield play and did not want the rest of the Australian Westfield operation incorporated into Westfield Retail at any price. It was not a question of value fairness. They wanted a yield play and for Westfield Retail to be part of the yield boom.
That, of course, would have been an absolute antipathy of the views of the Lowy family and all those on the Westfield boards plus their advisers. The Westfield Empire has been built on growth.
Unless the Westfield people understood the power of the yield boom they would have been totally frustrated by the ‘opposition at all costs’ view.
And they will not be the last set directors and advisers to be frustrated because, in a different context, the yield boom is going to put enormous pressure on companies to distribute more profits than they should. In this context the KGB's discussion with Telstra chief executive David Thodey are very important (Thodey's Telstra plans have huge implications for shareholders, May 23).
As things currently stand, if Westfield Retail shareholders continue to block the deal which sees them buy the development and management arms of the Westfield group in Australia, then the parent company Westfield Group plans an alternative overseas/Australian split strategy. Westfield Group will effectively implement that strategy without Westfield Retail. That proposal saw the Westfield Retail meeting adjourned.
But according to Macquarie Research the alternative proposal would not only see the value of Westfield Retail reduced but would slice the value of Westfield Group as well.
And the market on Friday agreed with Macquarie.
I think Westfield and its advisers need to go back to the drawing board and recognise that, like it or not, we have a yield boom and Westfield needs a proposal that caters for that boom.
Whether the boom is good or bad is irrelevant. It’s a fact in the current market that must be recognised.
Was I too tough on Frank? All I wrote about the Westfield deals mess stands but there were many people involved on all sides.
In retrospect, I think we can allow Frank to be a part of a corporate mess without having him falling from grace. He has a very big bounty of past credits, which count, and there were a lot of forces and groups from all sides contributing to the way everything turned out.
And my guess is that just as I have been having second thoughts over the weekend so Frank Lowy will be looking at how this whole situation can be worked through.