Mar 20, 2015
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Simon Property raises offer for Macerich to $95.50/share

Mar 20, 2015

Simon Property Group Inc, the largest U.S. shopping mall owner, raised its offer for smaller rival Macerich Co to $95.50 per share in cash and stock.

Macerich rejected on Tuesday Simon Property's earlier offer of $91 per share and adopted a poison pill to prevent a hostile takeover.

Simon Property said on Friday that the offer, which has an enterprise value of $23.2 billion, would be withdrawn if Macerich did not meet with the company by April 1.

Macerich moves make Simon Property takeover bid tougher

Whether a ploy to drive bidding higher or an effective roadblock, Macerich Co.'s moves this week to ward off Simon Property Group Inc's $14.39 billion hostile takeover has given the target company a stronger defense against a formidable adversary.

Macerich's adoption of a staggered board and a poison pill, announced on Tuesday, makes Simon Property's bid to take over the third-largest U.S. shopping mall owner more difficult.

The poison pill will grant shareholders the right to buy Macerich shares at half their market value if any person or group acquires 10 percent or more of the company. Staggered boards are also considered a powerful anti-takeover defense.

With Macerich's moves, management has greater control over the real estate investment trust, making it tough for Simon Property to force a resolution, analysts say.

"Unless Macerich wants to do a deal, there won't be a deal," said Alexander Goldfarb, an analyst at Sandler O'Neill + Partners LP in New York. Historically, hostile takeovers of REITs are very difficult, he said.

Macerich's stock price suggests traders expect a sweetened bid. Shares hit a high of $94.18 on Thursday, up 3.5 percent from the offer price of $91 a share.

The stock has climbed 35 percent since the day before Nov. 19, when Simon Property announced it had accumulated a 3.6 percent stake in Macerich.

The governance changes Macerich implemented this week aim to give it more breathing room when it comes to assessing its options, the company's board said on Tuesday.

The anti-takeover measures are not as unfriendly to shareholders as they may seem, Todd Thomas, an analyst at KeyBanc Capital Markets, said in a note, adding that the company could hold out for a higher offer.

Simon Property's chairman and chief executive, David Simon, is considered a savvy foe. Investors give Simon credit for being disciplined in pursuing acquisitions that make sense, while dropping a deal that is not valuable, said

Paul Adornato, senior analyst at BMO Capital Markets in New York.
For example, Simon Property withdrew a $4.5 billion offer for the UK's Capital Shopping Centers in 2011 when the company refused to share information.

"David Simon has shown discipline over the years in walking away when either the numbers don't make sense or the deal is dead," Adornato said.

Sandler O'Neill's Goldfarb said Simon Property's offer of $91 a share is "pretty healthy," though he recognized it could go higher.

"Obviously people don't lead with their 'best-and-final,' but the number that they've put out on our valuation is close to our forecast," Goldfarb said.

If Simon Property's offer were to rise to $115 a share, it would drive a real estate measure known as the "cap rate" down to 4.0 percent, a high price but not too high, Adornato said. A cap rate is determined by dividing a property's net operating income with an asset's price. Falling cap rates indicate rising values.

"While that might seem excessive, one has to keep in mind there's a lot of growth that's not yet in Macerich's numbers," Adornato said, referring to Macerich's acquisition of New York properties Kings Plaza in Brooklyn and Green Acres on Long Island, where a turnaround strategy has just begun.

$1 = £0.68

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