Simon Property Group, the largest mall owner in the U.S., is challenging the $7.5 billion sale of the Mills Corp. to Brookfield Asset Management with a bid of its own. On Monday, Simon offered to pay $24 per share in cash, or roughly $1.56 billion, for the plagued company.
Analysts praised the Simon bid as the most logical. Mills stock price leaped with the news, closing up 16.8 percent to $25.87 at end of trading Monday. Simon's stock closed up 1.1 percent to $116.27.
Simon partnered with Mills' largest shareholder, hedge fund Farallon Capital Management, on the bid. Each of them will contribute $650 million in equity to finance the deal, which would include 38 retail properties comprising some 47 million square feet of space. The real estate investment trust has co-developed or managed several of the properties currently under the Mills banner, while Farallon already owns 10.9 percent of the outstanding common shares of Mills.
"Simon is comfortable with the real estate and has great familiarity with properties," said a spokesperson for the partnership. "They believe they can maximize the value of the portfolio."
They're not the only ones. Brookfield landed the Mills merger only after feuding with Israeli real estate company Gazit-Globe and Farallon, both of which offered competing plans to recapitalize the company. Brookfield's offer includes $21 per share, assumed debt and preferred stock. Simon, however, promises to sweeten the deal for Mills' shareholders by offering more per share and paying out shareholders six months before Brookfield would.
According to Simon and Farallon's letter to Mills, sent Monday, the new proposal reduces deal risk and could equal a benefit of at least $1 per share to the shareholders.
"Simon is the most logical buyer of the portfolio," said Richard Moore, managing director of equity research at RBC Capital Markets. "There's just so many synergies for a landlord when you have that many properties. Why would Simon, or General Growth, or any others let Brookfield take that portfolio when Brookfield doesn't have any regional malls?"
Bank of America senior equity analyst Ross Nussbaum was more blunt in his assessment of the deal. "We believe the Mills board will have no choice but to terminate the existing merger agreement with Brookfield and enter into a new one with Simon/Farallon," he wrote in a research note.