UPDATE 3-CSC rejects Simon Property's offer as 'impracticable'

Sun Dec 12, 2010 5:40pm EST

* Simon pitches alternative funding for CSC's UK mall buy * Proposal may see Simon with 18.4 pct to 27 pct CSC stake * Potential offer to buy CSC also remains on table -Simon * CSC says Simon's offer 'completely impracticable' * CSC says in shareholders' interest: Proceed with Peel deal (Adds CSC rejection, recasts)

By Daryl Loo and Ilaina Jonas

LONDON/NEW YORK Dec 12 (Reuters) - Capital Shopping Centres CSCG.L has slammed as "incapable of implementation and completely impracticable" an alternative funding offer from its shareholder and would-be bidder Simon Property (SPG.N).

Earlier on Sunday, Simon Property had pitched to CSC's board a plan to help fund the UK firm's 1.6-billion-pound ($2.53 billion) mall acquisition, which it argues offers better terms while potentially lifting Simon's stake in CSC up to 27 percent.

"The CSC Board notes that what SPG proposes would provide SPG with a holding of between approximately 18.4 percent and 26.9 percent in CSC, together with a seat on CSC's Board," CSC, which owns 13 regional UK malls, said in an e-mailed statement.

"It is not open to CSC unilaterally to alter the terms of its legally binding contract with Peel. Therefore, what Simon Property proposes does not provide a genuine alternative for CSC shareholders," CSC added.

Simon, which now owns 5.1 percent of CSC, objected last week to CSC's plan to partly fund its purchase of the Trafford Centre mall in Manchester with shares and convertible bonds that gives seller Peel Group a 19.9 percent stake in CSC. [ID:nLDE6B707Q]

The war of words between Simon and CSC, respectively the United States and UK's largest owners of shopping centres, had started on Nov 25 when CSC first unveiled the Trafford deal, which is poised to make Peel its biggest shareholder.

CSC's shareholders are due to vote on the transaction at an extraordinary general meeting on Dec 20.

"If CSC is to proceed with the Trafford Centre acquisition, financing that transaction on clearly better terms has to be in the company's and its shareholders' best interests," David Simon, chairman of Simon Property, had said in a letter addressed to CSC's board.

CSC BACKS PEEL STAKE

In rejecting Simon Property's counter-offer, CSC said its board noted that the U.S. property company "is now recognising the strategic importance of the Trafford Centre as a future part of CSC's portfolio.

"Peel has reiterated to the CSC Board ... that it wishes to remain invested in UK regional shopping centres and does not wish to sell the Trafford Centre for cash as Simon Property is suggesting," CSC said.

Peel, controlled by UK billionaire John Whittaker, has also stated it plans to remain a "long-term supportive shareholder in CSC," the UK company said, reiterating its recommendation that CSC shareholders vote in favour of the Trafford acquisition.

In its letter, Simon Property offered to subscribe for an issue of 205.5 million CSC shares at 400 pence each, which it said was a 6.1 percent premium to CSC's net asset value, and 9 percent higher than CSC's current deal with Peel.

The proposal would lift Simon Property's stake in the UK firm to at least 18.4 percent, following a "clawback" option for other CSC shareholders. Excluding the clawback, Simon Property could end up with a 27 percent stake in CSC, putting it just shy of a 30 percent shareholding that would trigger an offer under UK takeover rules.

To further sweeten its offer, Simon Property had said it is willing to accept certain "less favourable" terms compared to those offered to Peel, including not requesting a deputy chairmanship on CSC's board, and to hold on to CSC's shares for a longer period than Peel.

Simon Property, which is being advised by Lazard and Citi, said its earlier proposal to make a potential cash offer for CSC at a premium to NAV, made late last month in an attempt to block the Trafford deal, also remains on the table. (Additional reporting by Nick Zieminski; Editing by Jan Paschal) ($1=.6324 Pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)