Mills to weigh offer from Simon/Farallon
by Ilaina Jonas
NEW YORK (Reuters) - The board of mall owner Mills Corp. MLS.N will weigh a $1.56 billion takeover offer from Simon Property Group Inc. (SPG.N) and Farallon Capital Management, but its deal with Brookfield Asset Management Inc. (BAMa.TO) remained intact, Mills said on Tuesday.
Despite an accounting scandal and cash-flow problems, Mills still controls malls that include highly desirable U.S. locations.
To bidders, the properties' value outweigh Mills' potential problems, which include an investigation by the U.S. Securities and Exchange Commission, some analysts said.
Since Brookfield said last month it had reached an agreement to buy Mills for $1.35 billion, Mills' shares have often traded above the $21-per-share offering price, as investors expected rival bidders.
The new offer by Simon, the largest U.S. mall owner and Farallon, Mills' largest shareholder, is valued at $24 per share.
Yet, Mills shares closed at $26.35 on the New York Stock Exchange, significantly above the Simon/Farallon offer, as investors bet a higher offer could yet surface.
"Clearly investors believe this is not the last round," said a trader who specializes in takeover stocks and who did not wish to be quoted.
"Simon Property can increase its position in major markets and eliminate a desperate competitor," UBS analyst Scott Crowe wrote in a research note. "The bid gives credit for certain well-located assets and for potential to reposition others."
Simon General Counsel Jim Barkley said the Simon/Farallon group could sell some of the malls.
"I think that's always a possibility, but I think primary (intention) is to try to make the assets as good as they can be," Barkley said. "It's no secret that they haven't had the focus they needed or deserved over the last 12 or 18 months."
Simon's interest in Mills began about a year ago when Mills said it was considering selling itself. Simon initially began talks with Blackstone Group, but the private equity firm dropped its interest when it turned its attention to Equity Office Properties Trust EOP.N, Barkley said.
"That was just too much of a deal for them to turn their attention to this transaction," Barkley said.
Equity Office shareholders are scheduled on Wednesday to vote on Blackstone's proposed $39 billion buyout offer.
Simon and Farallon began talks after Brookfield announced its offer for Mills, Barkley said.
The teaming of Farallon and Simon, a real estate investment trust, dilutes the impact of potential litigation a new owner of Mills could inherit, given the SEC investigation and Mills' own admission that its accounting problems could be the result of fraud, UBS analyst Crowe said.
Barkley said the deal would be structured as an off-balance sheet transaction, which would among other things, help shield the new buyers from Mills' potential shareholder litigation.
Crowe doubted Brookfield, which is not active in the mall real estate industry, would top Simon's bid.
Mills said its board had reached no decision about the Simon/Farallon proposal and no assurances could be given that the offer would lead to a binding agreement.
Meanwhile, Simon shares closed up $2.62, or 2.2 percent, to a record high of $118.89 on Tuesday. Other retail REITs, such as Taubman Centers Inc. (TCO.N) and General Growth Properties Inc. GGP.N also closed higher.
