Simon Property Group Inc. made a $22.4 billion unsolicited bid for for Macerich Co., a deal that would combine two of the largest U.S. shopping-mall owners.
Simon, the No. 1 mall owner, went public with its bid on Monday after being rebuffed by Macerich during private discussions late last year and in February. The offer, in cash, stock and assumed debt, may be the opening salvo in a protracted takeover battle for the real estate investment trust, analysts said.
The deal would unite companies that together own or have interests in some of the best regional shopping malls across the U.S. and strengthen Simon’s ability to negotiate with tenants. While some traditional shopping malls across the country are fading, those with luxury retailers in larger cities are thriving.
“This is their first shot across the bow,” David Auerbach, an institutional REIT trader at Esposito Securities LLC in Dallas, said of Simon’s offer. “I don’t think this is the best bid Simon could put in front of them.”
In its own statement Monday, Macerich confirmed it received Simon’s unsolicited offer and said its board will review the proposal with its financial and legal advisers.
Macerich shareholders would receive the equivalent of $91 a share as 50 percent cash and 50 percent Simon stock under the deal, Indianapolis-based Simon, the largest U.S. mall landlord, said in a statement. The transaction would include the assumption of about $6.4 billion of debt.
The offer represents a 30 percent premium to Macerich’s closing price on Nov. 18, the day before Simon disclosed a 3.6 percent stake in the Santa Monica, California-based landlord, sparking speculation of takeover plans. Simon said it has made multiple attempts to discuss its interest, and the company has so far refused to engage in talks.
“This is a very compelling offer that will enable Macerich stockholders to realize a substantial and immediate cash return while building long-term value through ownership of Simon shares,” Chairman and Chief Executive Officer David Simon said in a letter to Macerich Chairman and CEO Art Coppola, included in the statement.
Also on Monday, Simon said said it has reached an agreement to sell certain Macerich assets to Chicago-based General Growth Properties Inc., the No. 2 U.S. mall landlord, in connection with completion of the deal.
The properties Simon agreed to sell to General Growth represent close to 20 percent of the deal value, or about $4 billion, two people with knowledge of the matter said. The proceeds of the sale will be used to pay down debt, the people said, asking not to be identified discussing private information.
David Keating, a spokesman for General Growth, didn’t return a voicemail seeking comment.
“We urge Macerich to forgo entrenching defensive tactics that obstruct the will of its shareholders and instead engage in serious discussions with us,” Simon said in the statement. “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.”
Takeovers of companies are one of the few ways large U.S. mall owners can grow because high-quality properties rarely come up for sale. Simon has been developing outlet malls around the world while refurbishing and expanding some of its biggest U.S. malls to boost returns.
Simon “hasn’t made a secret of its desire to grow” and Macerich’s “portfolio makes an attractive addition,” Nathan Isbee, an analyst at Stifel Nicolaus & Co., wrote in a note to clients Monday.
While some retailers have contracted, malls with higher sales have maintained elevated occupancies and generated better growth in same-store net operating income, Jeffrey Langbaum, a REIT analyst with Bloomberg Intelligence, wrote in a report on March 5.
After spinning off its lower-tier shopping centers last year, Simon’s portfolio had average tenant sales of $619 a square foot in the fourth quarter, above the mall REIT average, with Macerich’s $587 average only slightly lower, according to Langbaum.
The deal between Simon and General Growth “may signal that General Growth isn’t interested in bidding for the entire company,” Langbaum wrote in a report Monday. “As the second-largest mall REIT, General Growth would be a potential bidder for Macerich in an effort to compete with Simon, and perhaps the only REIT besides Simon that could absorb Macerich.”
Macerich climbed 7 percent to $92.76 on Monday. The stock has gained 33 percent since Simon first disclosed it bought a stake in the company. Simon shares were little changed Monday at $180.44. General Growth rose 1.8 percent to $28.70.
Simon said in November that it had accumulated a 3.6 percent share of Macerich and may try to buy more. Simon said at the time it may seek to have the REIT waive a provision that restricts ownership to 5 percent.
Before Simon’s disclosure, Macerich said it bought the share of five U.S. shopping malls it didn’t already own from a subsidiary of the Ontario Teachers’ Pension Plan Board for $1.89 billion, including the assumption of debt. The purchase price included $1.22 billion of stock issued to the pension plan, or an ownership of almost 11 percent, at $71 a share.
Simon has also been active in transactions outside the U.S. In 2012, the company acquired an interest in European mall owner Klepierre, based in Paris.
The REIT hasn’t always been successful in trying to complete deals. Simon failed in an effort to take over General Growth after its smaller rival filed for bankruptcy in 2009. General Growth exited bankruptcy in November 2010.