Simon Property Group sweetened its bid for the Macerich Company on Friday, but will it be enough to bring the mall operator to the table?
Indianapolis-based Simon, the largest mall company in America, said it sent a letter to Macerich outlining its best and final offer: $95.50 a share in cash and Simon shares to acquire the outstanding shares of the Santa Monica, Calif.-based self-operated real estate investment trust and the third biggest mall operator.
Simon on March 9 made an unsolicited offer of $91 a share, which on March 17 was rebuffed by Macerich after its board unanimously determined that the proposal “substantially undervalued” Macerich and was not in the best interests of Macerich and its stockholders.
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To ward off Simon’s advances, Macerich adopted a poison pill and classified its board structure to prevent Simon from placing any of its own members on the board.
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The other terms of Simon’s previous $91 a share offer remain the same, the company said, including consideration in the form of 50 percent cash and 50 percent Simon common stock, utilizing a fixed exchange ratio.
The total value of the proposed transaction is about $23.2 billion, including assumption of approximately $6.4 billion of Macerich debt outstanding.
The offer represents a 37 percent premium to Macerich’s unaffected closing stock price of $69.88 on November 18, 2014, the day before Simon disclosed a 3.6 percent stake investment in Macerich, or about 5.71 million shares.
The offer is now $24.50 per share above, or a 35 percent premium to the $71 share price underlying the November 2014 agreement by Macerich’s board of directors to issue 10.9 percent of Macerich’s shares to the Ontario Teachers’ Pension Plan in exchange for certain joint venture interests.
Macerich on Friday said its board will review the revised proposal with its financial and legal advisers.
Both companies own trophy malls, Simon, the Forum Shops at Caesars Palace in Las Vegas, and Macerich, Santa Monica Place.
“The stock market seems to be saying, maybe it won’t happen,” said Roy Shepard, a REIT analyst at Edward Jones. “Despite all the mudslinging, there’s a chance of it happening. These types of things tend to happen over weekends. I wouldn’t be shocked if something was announced on Monday.”
Macerich stock at midday Friday was at $89.37, $4.71 below the offer on the New York Stock Exchange.
“The board has a fiduciary duty to seriously consider Simon’s offer,” Shepard added. “I think its a fair offer, valuing the company at 20 percent or 25 percent over its consensus value. They have to take it seriously.”
“It’s a very strong bid,” said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners. “But Macerich remains a company with a very independent spirit and marches to their own beat. I haven’t seen them be pressured into anything before and I don’t think that’s going to change.”
The acquisitive Simon has been spurned before. Simon in 2010 made a $10 billion hostile bid for GGP as it was trying to emerge from bankruptcy.
Simon made four buyout proposals within 10 months but dropped its last offer when a stalking horse bidder emerged and was ultimately victorious.
While many shopping malls across the country have been suffering from dwindling consumer traffic, aging physical plants, vacancies and a dearth of new retail concepts, it’s the so called A malls in Macerich’s portfolio that Simon is after. Simon said it reached an agreement in principle to sell selected Macerich assets to GGP.
If the Macerich deal doesn’t happen, Simon has plenty to spend its capital on. While there’s little ground-up regional mall development in the U.S., the outlet sector is growing and Simon operates The Mills and Premium Outlets. Simon is working on major redevelopments at two dominant centers, the King of Prussia Mall in suburban Philadelphia and Woodbury Common in Central Valley, N.Y.
Deutsche Bank Securities Inc., Goldman, Sachs & Co. and JP Morgan Securities LLC are acting as financial advisers to Macerich and Kirkland & Ellis LLP, Goodwin Procter LLP and Venable LLP are acting as legal counsel.