Corrects last paragraph to remove erroneous Reuters instrument code
By Andrew Macdonald and Daryl Loo
LONDON Capital Shopping Centres' CSCG.L plan to buy a big UK mall has flushed out major U.S. shareholder Simon Property (SPG.N) as a possible bidder for CSC, which analysts estimate now has a price tag of more than 3 billion pounds ($4.7 billion).
CSC said it received a potential offer from Simon Property on November 24 that tried but failed to have the mall acquisition postponed, promising "a potential cash offer for the company at an unspecified premium to NAV."
"Their letter did not contain any offer or indicative offer, nor provide any certainty that an offer will be made," CSC Chief Executive David Fischel said, noting shareholders would be able to vote on the Trafford deal at a meeting on December 20.
Two analysts told Reuters on Thursday that CSC's 1.6 billion pound plan to buy Manchester's Trafford Center would value the company at about 425-450 pence a share, or 15.5-22.3 percent more than its 368 pence net asset value at June 30.
"This (deal) just increases the attraction for a strategic move by (5.6 percent shareholder) Simon Property into the UK," one of the sources said.
Execution Noble analyst Michael Burt said a bid for CSC would have to exceed NAV by more than 10 percent to encourage cornerstone shareholders to sell, and also to reflect the quality of its 4.9 billion pounds shopping center portfolio.
"The Trafford deal will increase CSC's market capitalization and hence the check Simon would have to write to acquire the business from 2.5 billion pounds to 3.1 billion," he said.
"An offer would need to start with a 4 to ensure shareholder support," Burt said, referring to a bid of more than 400 pence.
By 1225 GMT, CSC shares were up 10.1 percent at 371.3 pence, against a 3.8 percent rise in the broader index of UK property stocks .FTELUK. Other UK property stocks also gained on the news.
If the Trafford Center deal goes ahead, seller Peel Group, controlled by UK billionaire John Whittaker, will become CSC's biggest shareholder with 19.9 percent.
CSC would own 10 of the top 25 UK malls, cementing its status as a retail heavyweight.
Whittaker, chairman of Peel Group, would join the CSC board as a non-executive director and deputy chairman.
Simon Property could not be reached for comment. The U.S. market is closed on Thursday due to the Thanksgiving holiday.
TIDES OF CHANGE
Nomura analyst Mike Prew said the planned Trafford Center deal changed the complexion of the UK real estate investment trust market. "REITs are finally working it out and doing what they were designed to do, which is use their corporate paper as currency for property transactions," he said.
To acquire the 1.9 million-square-foot mall, Peel Group -- via its unit Tokenhouse Holdings -- will receive 747.6 million pounds in shares and convertible bonds from CSC, while the latter will take on 854 million pounds of debt.
CSC also completed a placement of 9.9 percent or 62.3 million of its existing shares on Thursday at 355 pence per share, in an accelerated book build with institutional and other investors that raised 221.2 million pounds.
Peel Group would contribute about 77 million pounds cash to the bookbuild for up to 167.3 million new CSC shares and up to 209.0 million pounds of 4.076 percent convertible bonds.
The planned acquisition is the third big-ticket UK shopping center deals this week. UK investor British Land (BLND.L) and Australian mall owner Westfield WDC.AX have both announced separate UK mall deals worth a combined 1.1 billion pounds.
Prew said all this puts pressure on British Land and fellow blue-chip property company Land Securities (LAND.L) to demerge their respective diversified portfolios into units with more specialist focuses.
"Rather than having internal debates, the diversified companies are facing external pressures now and they do need to revisit the demerger idea but in many instances the liabilities side of their balance sheets could be obstructive," Prew said.
CSC was formed out of the demerger of Liberty International earlier this year. It had recently ruled out acquisitions saying it planned to grow organically in its existing malls through 78 million pounds of capital project.
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)