Simon Property Group Inc. and Farallon Capital Management LLC said Monday they are offering $24 per share in cash, or more than $1.6 billion, for mega-mall developer Mills Corp., topping a previous $1.35 billion deal from Canadian investor Brookfield Asset Management.
In a letter to Mills, Simon Property and Farallon said they will each provide $650 million of equity for the transaction. Funds managed by Farallon currently own about 10.9 percent of Mills outstanding shares, making it the largest reported Mills shareholder.
Simon Property and Farallon said their proposed tender offer would give Mills’ shareholders payment at least six months faster than the Brookfield deal.
Simon Property said it also obtained an option to buy about 2.8 million Mills’ shares from Stark Master Fund Ltd. for $24 per share, effective when the tender offer begins.
Earlier this month, Mills, which is struggling under heavy debt and widespread accounting problems, agreed to a deal with Brookfield Management that represented an 18 percent premium to Mills’ Jan. 16 closing price.
Chevy Chase, Md.-based Mills, which owns 38 malls across the country, has warned 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 has revealed numerous accounting mistakes that will force it to restate earnings as far back as 2001. The Securities and Exchange Commission is investigating.
The Simon-Farallon proposal gives Simon a chance to acquire assets at a deep discount compared to what the portfolio would be worth if it was run by a better operator, said David L. Aubuchon, an analyst who covers Simon for St. Louis-based A.G. Edwards & Sons Inc.
“I think Simon is generally recognized as one of the better operators if not the best in the retail industry,” he said.
The Mills malls emphasize a focus on entertainment with some housing attractions such as skating rinks and miniature go-cart tracks. That would give Simon’s mall portfolio “a different twist,” Aubuchon said.
Indianapolis-based Simon owns or has an interest in 286 properties in the United States. It also has an interest in 53 European shopping malls and five premium outlets in Japan, said Simon spokeswoman Stephanie Pillersdorf.
The Mills properties would “fit perfectly” with Simon’s portfolio, she said, noting that “Simon’s got the resources to maximize value for these assets.”
A Mills spokesman did not immediately return a call seeking comment.
Hedge fund Farallon Capital, together with Israeli real estate firm Gazit-Globe Ltd., previously offered to invest millions in Mills, with Farallon suggesting a $499 million recapitalization plan at $20 per share, and Gazit’s $1.8 billion offer including a $500 million stock sale at an average $21 per share. Gazit later raised its offer to an average of $22 per share.
Aubuchon said the market expects a response from Brookfield.
“I think this is a situation that is far from over,” he said.
But another analyst, Rich Moore of RBC Capital Markets, said he didn’t expect a bidding war. Mills called Simon the “only logical buyer here.” He also said the Simon-Farallon deal was closer to his estimate of Mills’ value of between $25 to $45 per share.
“I think they are gone,” he said of Brookfield. “I think this ($24 per share) may be your number.”