By Robbie Whelan
A potential massive mall merger turned into a battle royal
Tuesday, with two of the country's largest retail landlords trading
barbs over a $16 billion takeover offer.
Los Angeles-based Macerich Co., the third-largest mall owner in
the U.S., by market value, on Tuesday rejected an offer by its
larger rival, Indianapolis-based Simon Property Group Inc., to buy
the company for $91 per share in cash and stock.
In a letter to Simon's board, Macerich Chairman and Chief
Executive Art Coppola said the offer "substantially undervalues"
Macerich and raised questions about the structure and legality of
the deal Simon proposed.
Macerich also announced that its board had approved a poison
pill and staggered its board of directors, two governance changes
aimed at making it harder for it to be taken over.
"The board believes it is vital that it take proactive measures
to protect stockholder value and prevent the accumulation of stock
by any group that might seek to force the sale of the company,"
Macerich said.
Mr. Coppola also criticized Simon's decision to partner with
another mall company, General Growth Properties Inc., in the deal.
As part of Simon's March 9 unsolicited offer, the company said it
had entered into an agreement to sell selected Macerich assets to
General Growth.
"The Macerich board believes this partnership raises serious
antitrust concerns as it is a concerted effort by the two largest
companies in the industry to acquire the number three company,"
Macerich said in a statement.
In Tuesday's letter to Simon Chairman and Chief Executive David
Simon, Mr. Coppola argued that the offer undervalued Macerich in
part because of the amount of property the company has in its
development pipeline. He noted that over the next five years,
Macerich plans to spend $400 million to $500 million a year on
development and redevelopment plans.
"Over the past two years, we have transformed Macerich's
portfolio by selling lower quality malls to fund our highly
(valuable) development pipeline," Mr. Coppola said.
Simon fired back late Tuesday morning with its own statement,
calling Macerich's rejection a "scorched earth" policy that is bad
for shareholders. The statement pointed out that in November,
Macerich issued stock at $71 per share to buy out several joint
ventures it had with the Ontario Teachers' Pension Plan in a deal
valued at $1.9 billion. Simon's offer represents a 28% premium over
the November share price.
One day after Macerich's deal with Ontario was announced in
November, Simon disclosed a 3.6% stake in Macerich, sparking a
sharp rise in the company's shares. They were down about 3% at
$92.13 in afternoon trading on the New York Stock Exchange on
Tuesday.
"Macerich's rejection is based on a rosy view of its future
prospects," said Mr. Simon. "Based on Simon's long history of
outperforming Macerich, we are confident Macerich shareholders will
realize more value through a combination with Simon than they could
on a stand-alone basis."
Simon also said there were no legal issues with its offer and
attacked Macerich's decision to stagger its board without
shareholder approval--a move made possible by the Maryland
Unsolicited Takeovers Act, a law enacted in the 1990s to protect
real-estate investment trusts. That law resulted in many REITs,
including Macerich, incorporating in the state.
"Macerich's decision to stagger its board without shareholder
approval would be poor corporate governance at any time," Mr. Simon
said in the statement, but it is "particularly egregious" because
Simon had previously told Macerich it would only seek to replace a
minority of the company's board.
"Macerich clearly does not believe its shareholders can be
trusted to decide the composition of its board when the value of
their investment hangs in the balance," the statement said.
The governance changes and the criticism of General Growth's
involvement in the deal came as a surprise to Simon and signaled to
the Simon camp that Macerich was trying to create barriers to a
deal, according to people familiar with the matter. The next step
for Simon is to decide whether to take its offer directly to
Macerich shareholders in a hostile bid or to drop the offer
altogether, these people said.
"My hope is that the board, even with this staggered defense
will remain open to other proposals from Simon or from any other
competitive bids," said Bob Gadsden, who owns 40,000 shares of
Macerich's stock in the Alpine Realty Income and Growth Fund, in
Purchase, N.Y. "Do I think there's a bid out there greater than
$91? Yes. And I think existing shareholders will put pressure on
management if the offers reach a point where it makes more
sense."
For Simon, buying Macerich would increase the company's foothold
in Arizona and on the West Coast, where many of Macerich's 59 malls
are located. It would also be a rare opportunity to acquire a
portfolio of high-quality malls, which don't often come up for
sale.
The retail landscape in the U.S. has been dividing into two
distinct sectors, with upscale malls prospering and
down-in-the-heels malls struggling to survive. A raft of deals in
recent years has left the highest-quality malls concentrated in the
hands of a few owners, typically real estate investment trusts like
Simon and Macerich.
Macerich's shopping centers include the Biltmore Fashion Park in
Phoenix and Tysons Corner Center outside of Washington, D.C., two
of the types of highly profitable centers that Simon covets. Simon
owns 190 properties, including Roosevelt Field mall on Long Island
and Houston Galleria, two of the highest-selling malls in the
country.
As more customers gravitate to online shopping and some large
department store retailers struggle, mall developers are finding it
harder and harder to justify the expense of developing new
properties, and increasingly turning to deals with their
competitors for growth.
Since 2010, just nine malls have been built, compared with 108
in the previous decade, and an average of 193 per decade between
the 1960s and the first decade of the 2000s, according to
real-estate data firm CoStar Group Inc.
Meanwhile, the values of top quality U.S. shopping malls--those
with a stable base of tenants and high sales figures--have surged
to record levels. Mall values rose 9.6% over the last year, and are
up 28% from their previous peak in 2007, according to Green Street
Advisors, another research firm.
Dana Mattioli and Liz Hoffman contributed to this article.
Write to Robbie Whelan at robbie.whelan@wsj.com
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