Two US Mall Operators Gearing Up For A Takeover Fight

Indianapolis-based company Simon Property has launched a hostile bid to acquire rival Macerich for $22.4 billion. If the deal manages to go through, two of the U.S.’s three largest shopping mall operators would be combined into a single entity.

That offer, which pencils out to about $91 per share in a cash-and-stock transaction, represents a 30 percent boost to Macerich’s closing stock price on Nov. 18. That was one day before Simon disclosed its 3.6 percent ownership of the company.

Simon reported yesterday (March 9) that this is the latest approach that Macerich has rebuffed.

“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,” said David Simon, chairman and chief executive. “We are confident our proposed transaction provides a highly attractive value proposition to Macerich shareholders . . . Considering the substantial benefits our offer provides, we are confident that, given the opportunity, Macerich’s shareholders would accept our proposal.”

Macerich’s shareholders so far are urging a wait-and-see course, with the caveat that the company’s board would review the “unsolicited, conditional” proposal from Simon.

It will be an uphill battle for Simon to take over Macerich, or at least it could be, since the latter firm is registered as a real estate investment trust in Maryland –  a state that happens to protect such companies from unsolicited bids. Even if the takeover is successful, the now larger Simon would have to deal with the declining fortunes of the American shopping mall.

“Some higher-end companies entering malls are doing phenomenally well, and there’s strong growth in outlets, while B and C locations are showing more of a struggle,” said Simeon Siegel, research director at Nomura.

Simon owns about 15 percent of U.S. malls and half of the country’s outlet stores and is the nation’s largest mall operator. A quarter of its revenues come from its discount outlets.

A takeover increases Simon’s national footprint, particularly in Arizona and California, and gives it greater leverage in negotiations with mall tenants.

Half the middle-class malls will fail or be converted to alternative uses within 20 years, he predicts.

BofA Merrill Lynch is acting as financial adviser to Simon while Latham & Watkins LLP will be the mall operator’s legal counsel.