Mega-mall developer The Mills Corp. said Wednesday it has agreed to be bought by Canadian investor Brookfield Asset Management Inc. for $1.35 billion in cash, a deal that comes after Mills struggled under heavy debt and the fallout of widespread accounting problems.
Under the deal, Brookfield will pay $21 per share for each Mills share, an 18 percent premium over Mills’ closing price Tuesday. Including debt and preferred stock, the deal is worth $7.5 billion.
Mills, which owns 38 malls across the country, will become a subsidiary of Toronto-based Brookfield.
Mills, based in Chevy Chase, warned last week that it could face bankruptcy if it didn’t find a buyer or refinance the $1 billion it still owes on a loan from Goldman Sachs Mortgage Co. The real estate investment trust also revealed numerous accounting mistakes that will force it to restate its earnings as far back as 2001. The Securities and Exchange Commission is investigating the errors.
Two major shareholders, hedge fund Farallon Capital and the Israeli real estate company Gazit-Globe Ltd., had offered to invest hundreds of millions of dollars in Mills, fearing that the company’s troubles would force it to sell at a low price.
But the Brookfield offer of $21 per share is near the offers made by Farallon and Gazit. Farallon proposed a $499 million recapitalization plan at $20 per share, while Gazit’s $1.8 billion offer included a $500 million stock sale at an average of $21 per share.
Mills Chief Executive Officer Mark Ordan said Wednesday that after considering several options, the acquisition by Brookfield has “achieved an outcome that is the best possible result for all involved.”
Brookfield will assume Mills’ remaining Goldman Sachs debt, which was due at the end of March. Mills said the terms of the loan will be revised, with Brookfield providing a $500 million line of credit.
The sale was unanimously approved by Mills’ board but must be approved by the company’s shareholders at a special meeting. Mills said it expects the merger to close in the second half of 2007.
Brookfield has about $50 billion worth of assets under management, including commercial real estate holdings in New York, Washington, Canada, London and Brazil. It owns and operates timberlands and hydroelectric power generation facilities in both North America and South America.
Mills was a pioneer of mega-malls, building dozens of the giant shopping centers over the past decade that included giant movie theaters, indoor sports and vast food courts. They include properties such as Potomac Mills and Arundel Mills outside Washington, and Sawgrass Mills in Fort Lauderdale, Fla., that once rivaled Disney World for the number of annual visitors.
The malls include such destination retailers as Bass Pro Shops, Nordstrom Rack, furniture seller IKEA and the OFF 5th Saks Fifth Avenue outlets.
Mills’ rapid growth led to problems. Some big projects, such as the planned $2 billion Meadowlands Xanadu mall in northern New Jersey, were way over budget and behind schedule. Mills last week blamed its rapid expansion for some of the accounting mistakes.
Those errors, some of which Mills said were the result of possible wrongdoing by company officials, were expected to trim between $347 million and $352 million off shareholder equity.