Europe’s largest commercial real estate company is mere days away from what could turn out to be a major turning point in its long-term fortunes.
On November 10th, shareholders in Unibail-Rodamco-Westfield (URW) will be asked to decide whether the company can go ahead with a €3.5 billion rights issue planned by the company’s management, led by CEO Christophe Cuvillier. URW executives insist the move is key to staying ahead of the company’s approximately $24 billion (€20.3 million) debt load in the face of the current economic storm, with successive waves of Covid-19 keeping customers away from the company’s flagship retail spaces in Europe and the US.
Standing in the way of their plan, however, is an unlikely pairing of activist investors – Unibail’s own former CEO, Léon Bressler, and French telecoms mogul Xavier Niel, who has come a long way from his beginnings in adult entertainment and has built Free into one of France’s largest mobile and broadband service providers. While Bressler and Niel claim that their “Refocus not Reset” vision for URW would liberate the company from a “failed strategy” and allow the firm to concentrate on its core market in Europe, the company’s leadership accuses the activists of putting forward an unrealistic and “extremely risky” proposal wherein the company would simply use its current liquidity to buy time and kick the debt can down the road.
Despite their close working relationship, a closer look at how Bressler and Niel have approached the debt and operational questions now surrounding URW reveal very different mindsets at play.
Léon Bressler: the once and future king?
Aermont Capital head Léon Bressler is in a unique position to critique the actions of URW’s leadership, given that he himself was CEO of then-Unibail for fourteen years between 1992 and 2006. Bressler oversaw one of the most prolific periods in the company’s history, turning it into a global real estate leader and setting it up to join France’s CAC40 in the year after his departure.
Given his history with the company, does this aggressive response to the URW rights issue indicate a desire for the former executive to take over his old firm with the help of Xavier Niel’s deep pockets? Bressler himself insists not, telling Le Monde that while “I certainly have a strong emotional link with this company, we don’t want to take control of it… we wish to get it out of a rut by changing strategy and getting it out of debt by taking the time to sell the American shopping centres.”
Bressler did not seem so pessimistic about Unibail-Rodamco’s 2017 acquisition of Westfield, and the American assets that came with it, when he re-invested in the company via Aermont in 2019. As Bressler’s current successor Cuvillier puts it, the former Unibail CEO bought 2% of URW’s shares fully two years after the deal with a clear view to benefiting from the company’s recovering stock price… at least until Covid-19 derailed those plans, together with so many others.
Asked why he did not warn URW’s current management against the “madness” of the Westfield deal before the crisis hit, Bressler retorts that he “wasn’t a shareholder at the time” and that URW’s current CEO is a “victim of the American mirage.”
Xavier Niel: “rebel stakeholder” or latecoming profiteer?
Telecoms mogul Xavier Niel, founder of the telecommunications group Iliad and of its flagship brand, Free, portrays his own role in the URW fight as that of a “rebel shareholder facing a failing leadership.” Rejecting the label of activist, he claims that his decision to join long-time investment partner Léon Bressler by taking a stake in URW is a long-term wager on the enduring appeal of commercial shopping centres after the Covid crisis.
URW’s executives, however, point to an approach that is “certainly more opportunistic and short-term” than Bressler, especially given that Niel only just become a URW shareholder last month. Given the reputation France’s top entrepreneur brings to bear as a business mind, it is difficult to see the master strategy behind the proposal that URW simply “sit tight” (in the Wall Street Journal’s terms) and use its available capital to deal with debts until the market recovers and URW’s US properties can be sold off at better prices in a few years’ time.
While Niel may reject the activist label, his move to block URW management’s plan and effectively throw the future of the company into uncertainty does align with the interests of the shortsellers currently betting against URW. As URW CEO Christophe Cuvillier has retorted: “Who knows what will happen in 12, 18, or 36 months? The market might not be any better for selling our American assets. Waiting is dangerous; now is the time to act.”
A dangerous game
One of the primary objectives of the alliance between Bressler, Niel, and the third member of their triumvirate, Spanish pharmaceutical executive and Gallardo family heiress Susana Gallardo, is to secure places for all three insurgents on URW’s supervisory board, from which they will be able to “move the company in the right strategic direction.”
Based on the proposals they have put forward thus far, it is not clear exactly what direction that would be, other than to cross their fingers and hope the Covid-19 pandemic loses steam before URW’s debt bubble bursts. A further 30% of URW’s highly decentralised pool of shareholders will now need to decide whether that is a vision they are willing to get behind.
