Buyers Battle for Mills

Shares soared Monday after a group led by Simon Property offered $24 a share for the shopping mall outfit, topping bids from two other rivals

The bidding war for shopping-mall operator Mills Corp. (MLS) continues. Simon Property Group (SPG) and Farallon Capital Management said Feb. 5 that they're offering around $1.56 billion for Mills, or $24 per share. This follows the Israeli real estate company Gazit-Globe's complex offer announced on Jan. 17 to recapitalize Mills for an average $22 per share - when the Canadian investment firm Brookfield Asset Management (BAM) made its own bid of $21 per share in cash.

These investors aren't afraid to buy a struggling company. Mills CEO Mark S. Ordan has been grappling with a host of inherited 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. Mills' bidders are offering to assume around $6 billion in assumed debt and preferred stock. But maybe they're all still getting a deal; Morningstar analyst Akash Dave said Jan. 17 that he thinks the stock has fair value at $35 per share.

Investors bid up the shares 15.4% to $25.55 per share in early afternoon trading on the New York Stock Exchange Feb. 5.

Funds managed by the San Francisco investment firm Farallon currently own around 10.9% of Mills outstanding common shares. "SPG's operating expertise, combined with the strong financial support we are both providing, will allow Mills' quality assets to perform to their true potential," Richard B. Fried, a Managing Member of Farallon, said in a press release Feb. 5.

Mills said it received the proposal and will "promptly consider" it. For now, its earlier merger agreement with Brookfield remains in effect (see, 1/17/06, "A Multitude of Suitors for Mills").

After the news Standard & Poor's equity analyst Robert McMillan hiked his 12-month target price on the stock to $26 from $21. (S&P, like, is owned by The McGraw-Hill Companies.) "Given the modest breakup fee in its existing merger pact with Brookfield Asset Management, as well as the complementary fit between SPG and MLS properties, we would not be surprised if MLS eventually accepted an SPG offer," McMillan said.

Simon Property Group, Inc. is a real estate investment trust headquartered in Indianapolis, Indiana. The company owns or has an interest in hundreds of shopping mall properties in the United States, Europe, Japan and Mexico. In contrast Mills, based in Chevy Chase (Md.), owns 38 properties in the U.S. Meanwhile Brookfield develops office properties.

"This is a unique opportunity to acquire a portfolio of quality retail assets," David Simon, Chief Executive Officer of SPG, said in the press release.

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