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European commercial property giant Unibail-Rodamco’s $24.7bn acquisition of Australia’s Westfield shopping malls is the biggest example yet of consolidation as the sector’s weapon of choice in the fight against online retailers. But there is no guarantee that scale is a solution. Westfield is a strong brand in a weak industry.

That does mean the deal is a poor one. Westfield is a well-run business that operates in wealthy major cities, including a space in New York’s World Trade Center. Much of its success is down to “experiences” such as ice skating, films and food, which dazzle shoppers into forgetting the outside world. 

Many aspects of the deal are therefore sound. Both companies have pursued a similar strategy of selling smaller assets and investing the proceeds into larger malls. There is little geographic overlap, so Westfield gives Unibail a new presence in the UK and US. Both also allocate a hefty portion of floor space to non-retailers — a good model when retail sales are dipping. And Unibail can afford the outlay. The company’s loan to value ratio will rise from 33 per cent to 39 per cent — a manageable level when the cost of capital is just 1.4 per cent. 

The price is also reasonable. Unibail is offering 0.01844 of its shares plus $2.67 in cash, a split that values Westfield shares at A$10.01. This is a step down from last year’s A$11 high. The €100m in expected cost savings will come largely from the loss of Westfield’s senior management and closure of corporate operations in Sydney; Australia’s largest-ever corporate takeover deal is going to result in the target exiting the country. 

There is, however, still the matter of the poor global retail backdrop. Unibail-Rodamco is betting that polarisation will hurt scruffier malls and benefit the higher end. But this presupposes that either one can win. What if neither does? Online retailers are already fighting back against “experiential” shopping: luxury goods come with extravagant packaging and, in some cases, your very own Jeeves to hand deliver or return purchases. 

In the shorter term, scale is the best way for bricks-and-mortar retailers to defend their position and support margins. The idealistic pioneer of shopping malls, Victor Gruen, came to dislike his creation, believing developers were wrong to prioritise profit. Investors in Unibail-Rodamco are right to put it first. 

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