The shopping-mall operator has drawn three competing bidders -- and one analyst thinks the buyout price could go higher
It must be a familiar sight to shopping-mall operator Mills Corp. (MLS): Eager buyers jostling each other for a piece of discounted merchandise. But this time, the item in question isn't a sweater or handbag -- it's the company itself. On Jan. 17, the troubled Virginia outfit announced plans to sell itself to the Canadian investment firm Brookfield Asset Management (BAM) for around $7.5 billion including assumed debt and preferred stock. But then the Israeli real estate company Gazit-Globe (GLOB.TV) stepped up with a counteroffer the same day.
The bidding war takes place during a tumultuous time for Mills. Its CEO Mark S. Ordan has inherited numerous problems since he took the reins in March, ranging from a looming debt burden to a Securities and Exchange Commission investigation into the company's accounting.
Now Brookfield, a global asset manager focused on property and other infrastructure assets, offered $21 per share in cash for Mills. Gazit-Globe also on Jan. 17 announced a complex offer to recapitalize the company for an average $22 per share, according to a Securities and Exchange Commission filing. Gazit-Globe's proposal is revised from an earlier offer that had an average price of $21.00, according to a Jan. 16 SEC filing. Gazit-Globe already holds a 9.7% stake in Mills. Meanwhile the shopping mall company's top shareholder, the California hedge fund Farallon Capital Management, L.L.C., had offered around $20.00 per share in another SEC filing on Jan. 16.
There might be room for more sparring between bidders. Morningstar analyst Akash Dave thinks the stock has fair value at $35 per share. "Although indications are that the Mills sale was conducted in a competitive bidding format, we haven't ruled out the possibility of counteroffers materializing, given the valuation level," Dave said in a research note Jan. 17.
Mills' stock fetched $22.46 per share in late trading Jan. 17 on the New York Stock Exchange, up more than 26% from the previous session's close. As investors wonder about how the company's various problems will be resolved, Mills' stock has been shedding value. Its high of the year had amounted to $44.50 on Feb. 16, 2006.
Standard & Poor's equity analyst Robert McMillan expressed doubt about the company's value. "We are lowering our 12-month target price to $21 from $26, based on the acquisition price, and downgrading the shares to hold since we see limited potential otherwise for appreciation," McMillan wrote in a research note. (S&P, like BusinessWeek.com, is a unit of The McGraw-Hill Cos.)
So far Ordan appears to have won his company some breathing room from its onerous debts. Brookfield agreed to provide Mills with debt financing until the completion of the merger, expected to close in the second half of 2007. The asset manager is taking on Mills' $1 billion Senior Term Loan from Goldman Sachs Mortgage Co., and will be revising the terms of such loans and providing a $500 million revolving line of credit on terms to be contained in a restated agreement.
"We believe the transaction with Brookfield not only provides certain value to Mills' stockholders, but also affords them the opportunity to participate in the upside potential created by this transaction," Ordan said in a press release Jan. 17. Unfortunately for Brookside, other players may have a different -- and costlier -- definition of "upside".