Simon says it wants Macerich for $22.4 billion — but Macerich says not so fast.
“They are a long, long way from a deal,” said one developer, who requested anonymity. “Nothing is going to happen unless the Macerich board believes it’s a compelling situation and there’s nothing compelling with what’s being offered now.”
“They are going to fight it. They are going to fight it hard and may even call the FTC [Federal Trade Commission] to get into it,” said retail analyst Walter Loeb.
On Monday, the Simon Property Group got a cool response from Macerich Co. in response to a letter from chairman and chief executive officer David Simon offering to buy Macerich for $91 a share in cash and stock. Macerich advised its shareholders to take no action at this time and stated that its board will review the proposal with its financial and legal advisers, which could be code for formulating a defense strategy.
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Macerich and Simon officials were not available to comment.
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Simon, based in Indianapolis, and Macerich, based in Santa Monica, are the largest and third largest mall companies in the U.S., respectively. If Simon prevails in its takeover attempt, the combined company would create a property juggernaut with nearly 290 properties with 243 million square feet, including some the biggest and healthiest shopping centers in the country. At Simon properties, sales per square foot rose to $619 last year, versus $582 in 2013. The occupancy rate rose to 97.1 percent from 96.1 percent. Macerich reported $587 in sales per square foot in 2014 versus $562 the year before. The occupancy rate was 94.4 percent last year, compared to 94.6 percent in 2013.
The total value of the proposed transaction is $22.4 billion, including the assumption of Macerich’s $6.4 billion of debt. Macerich shareholders would receive 50 percent cash and 50 percent Simon common stock, utilizing a fixed exchange ratio.
Simon noted that its offer represents a 30 percent premium over Macerich’s closing stock price of $69.88 on Nov. 18, the day before Simon disclosed its 3.6 percent investment in Macerich, which is equivalent to 5.71 million shares. The investment triggered speculation that Simon would bid on Macerich in light of Simon’s track record as a consolidator.
Simon’s bid represented about a 5 percent premium on Macerich’s stock close last Friday at $86.72. Macerich’s stock jumped 7 percent, or $6.04, to $92.76 on Monday on news of the bid, suggesting investors think Simon will raise its offer.
There’s also a side deal on the table, which would reduce the number of properties in the combined Simon/Macerich entity. Simon said it reached an agreement in principle to sell selected Macerich assets to General Growth Properties Inc. in connection with the closing of a Macerich acquisition. Simon and GGP did not disclose which properties would be involved.
By doing the side deal involving unloading certain properties, Simon eliminates a potential rival bidder for Macerich and could ease some FTC concerns.
A megatakeover could be just what’s needed for the ailing mall industry. While it does flag the difficulties malls are having with losing traffic and sales to the Internet, and with declining property values, the proposed deal also points up to the possibilities.
By buying Macerich, Simon would gain a bigger foothold in California, which is dominated by Macerich and Westfield Corp., another leading mall owner and operator. Simon would have greater clout in negotiating leases with retail tenants and could create bigger partnerships with retailers across larger footprints, faster and with greater efficiency. Simon could also roll out some of its new “omni” oriented technologies and marketing strategies across Macerich properties as well as its own.
Simon, a former banker who took over the reins of the family business in 1995, has been aggressive about putting the real estate company on the acquisition trail. It has purchased Premium Outlets, The Mills and a 28.9 percent ownership interest in Klépierre, which has shopping centers in 13 European countries.
Last January, Simon completed the acquisition of Jersey Gardens in Elizabeth, N.J., which was renamed The Mills at Jersey Gardens, and University Park Village in Fort Worth, Tex. Just last month, Simon formed a joint venture with Hudson’s Bay Co. for property acquisitions and to strengthen owned properties.
Simon’s bid for Macerich furthers speculation that some malls, in the age of the Internet, are undervalued.
Still, Simon’s overtures haven’t always been met with open arms. A hostile $1.68 billion bid for Taubman Centers in 2002 was thwarted after the governor of Michigan, where Taubman is based, signed a law to protect REITs from unwelcome offers. Starting in 2009, Simon made several bids for the-then bankrupt GGP, but threw in the towel when an investor came in with a recapitalization plan.
In his letter sent to the Macerich board, Simon wrote: “Notwithstanding multiple attempts, including meetings in December 2014 and February 2015 following the disclosure of our investment in November 2014, Macerich has thus far refused to engage in discussions with us regarding the merits of an acquisition by Simon. Considering the substantial benefits our offer provides, we are confident that, given the opportunity, Macerich’s shareholders would accept our proposal. In fact, many of our overlapping shareholders have voiced enthusiastic support to us for a potential combination since we publicly announced our stake in Macerich. We urge Macerich to forego entrenching defensive tactics that obstruct the will of its shareholders and instead engage in serious discussions with us. It is our strong preference to work with Macerich to reach a mutually beneficial agreement, and we are available immediately to meet with Macerich and its advisers.”
Simon owns or has interests in 228 retail real estate properties, representing 189 million square feet including many of the nation’s biggest and most productive malls, among them the Roosevelt Field mall in Garden City, N.Y.; Copley Place in Boston; Dadeland Mall in Miami; The Forum Shops at Caesars in Las Vegas; the Houston Galleria; King of Prussia Mall in Pennsylvania; Sawgrass Mills in Sunrise, Fla.; Town Center at Boca Raton, Fla., and Woodbury Common Premium Outlets in Woodbury, N.Y.
Macerich, with 54 million square feet of property, acquired Westcor Partners in Phoenix in 2002 and three years later, bought Wilmorite Properties, based in Rochester, N.Y. Among the biggest and most productive malls in Macerich’s portfolio of 60 properties are Queens Center and Kings Plaza Shopping Center in New York City; Tysons Corner Center in McLean, Va.; Scottsdale Fashion Square in Arizona, and Santa Monica Place in California.
“There is a general malaise on the subject of the mall businesses, but all of the mall guys have been talking about ways to support their tenants and their visitors,” said Mortimer Singer, ceo of Marvin Traub Associates. “You can support both by making the experience more interactive, more omnichannel. The best players aren’t just doing business as usual. They are trying to create initiatives that will counterbalance the malaise. Is the mall relevant to the 21st century? I think it still is.”
He also said he believes a Simon/Macerich combination would open additional opportunities for retailers, like swifter rollouts across the luxury, midmarket and value-oriented shopping centers that Simon has.
Loeb believes Simon could command higher rents as a byproduct of a Macerich deal. “Maybe that will happen, but I don’t think that’s the main reason behind this,” he said. “This creates [greater] efficiency. It’s more about being partners with retailers in the new economy and allows Simon to be quite progressive. Simon has done well with its acquisitions. The properties have prospered under Simon…But there is a problem these days: Simon needs tenants,” Loeb added, noting that many retailers, including Abercrombie & Fitch, Wet Seal, Sears, Gap and others have been closing doors. “Replacing them is difficult these days,” Loeb said. “There are few great new vehicles. It keeps them [mall operators] from being exorbitant in their pricing. Prices will go up, though this puts a damper on it. They have to watch that they don’t price themselves out of business.
Every year, retailers expect to see rents rising but it has to be done with an understanding of the marketplace.”
Simon said his company has “consistently delivered outstanding returns to its shareholders and, for a decade, has outperformed Macerich in virtually every key operating and financial category…We are confident our proposed transaction provides a highly attractive value proposition to Macerich shareholders.”
The mall mogul also cited “a successful track record of integrating and optimizing acquisitions, having successfully orchestrated nearly $40 billion of corporate real estate M&A transactions in 21 years as a public company. Macerich’s assets represent a strong strategic and geographic fit for Simon, and we believe this is an attractive opportunity to create long-term value for Simon shareholders.’