Macerich Investors Want More to Clinch Mall Megadeal: Real M&A

Simon Property Group Inc.’s $22.4 billion appraisal of shopping mall rival Macerich Co. is coming up short with investors.

The offer is only 6.6 percent higher than Macerich’s average price in the previous 20 days. One reason the premium looks miniscule is because Macerich’s stock had already jumped 24 percent since November on takeover speculation fanned by Simon’s purchase of a small stake. Even so, Macerich traded on Monday above Simon’s $91-a-share bid to acquire the rest of the company, signaling that shareholders are intrigued but think the price is too low.

Simon, the biggest U.S. mall landlord, made the proposal public after discussions between its chief executive officer, David Simon, and Macerich’s Arthur Coppola didn’t go anywhere. If Santa Monica, California-based Macerich were prepared to accept the transaction, a joint agreement probably would have been reached behind the scenes first, said Jeffrey Langbaum, an analyst for Bloomberg Intelligence.

“This has basically been a poorly kept rumor since November,” and “Macerich has so far been unwilling to bite,” Langbaum said in a phone interview from Princeton, New Jersey. “The market is betting that a deal will get done, but that $91 is not the number.”

Macerich shares ended on Monday at $92.76.

Western Expansion

Corporate takeovers are one of the few ways large U.S. mall owners such as Simon can grow because high-quality properties rarely come up for sale. In what would be Simon’s biggest purchase, the Indianapolis-based company would gain more properties in the western states such as California and Arizona. Analysts also see Macerich’s operating profit doubling this year, according to the average of 10 estimates compiled by Bloomberg.

Simon probably wouldn’t start with its best and final offer, Paul Adornato, a New York-based analyst for Bank of Montreal, said in a phone interview. He estimates that the $91 bid translates to a 4.8 percent capitalization rate, a measure of investment yield used in real estate that’s calculated by dividing net operating income by sale price.

Assuming Simon can pay a 4.5 percent cap rate, that implies a takeout price of $99 a share for Macerich, or $115 at a 4 percent rate, he said.

“Perhaps at or near these prices, Macerich may be tempted,” Adornato said. And it would still be cheaper than other recent transactions involving “top-quality malls,” such as General Growth Properties Inc.’s joint-venture deal for the Ala Moana Center in Honolulu, which sold this month for about a 3 percent cap rate, he said.

Opening Salvo

Macerich will likely look for other suitors willing to pay more than $91 a share, according to Nathan Isbee, an analyst for Stifel Financial Corp. General Growth Properties, the other industry giant, has an agreement to buy some Macerich assets in connection with the Simon deal, though that wouldn’t necessarily prevent it from bidding for Macerich itself. Some private-equity firms have also taken an interest in REITs in the past.

“We think $91 is just an opening bid/salvo in what could be a long takeover battle,” Isbee wrote in a report. “Macerich could hold out for at least a high $90s bid.”

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