Simon Offers to Buy Fellow Mall Giant Macerich for $16 Billion

Simon Property Group (NYSE:SPG) took the next step in its pursuit of The Macerich Company (NYSE:MAC) today, going public with an unsolicited proposal to acquire all of Macerich's outstanding stock for $91 per share. The offer is structured as 50% cash and 50% Simon common stock based on a fixed exchange ratio.

The total value of the proposed transaction is approximately $22.4 billion, once the assumption of Macerich's $6.4 billion of outstanding debt is factored in. The offer represents just under a 5% premium to Macerich's Friday closing stock price of $86.72, and a 30% premium to its closing stock price of $69.88 on November 18, 2014, the day before Simon disclosed its interest in the company by acquiring a 3.6% stake in the company, equivalent to 5.71 million shares.

Simon said it also has an agreement in principle to sell selected Macerich assets to General Growth Properties, Inc. (GGP) if and when a deal to acquire Macerich is consummated.

Saying he believed Simon's cash and stock offer would bring compelling value to shareholders of both companies, Simon chairman and CEO David Simon went on to say, “Simon has consistently delivered outstanding returns to its shareholders and for a decade has outperformed Macerich in virtually every key operating and financial category, including share price performance, comparable NOI growth, sales per square foot, occupancy rates, FFO growth, dividend growth and total shareholder returns. We are confident our proposed transaction provides a highly attractive value proposition to Macerich shareholders," adding that Simon had received "enthusiastic support" for the combination from many of overlapping shareholders.

Macerich has so far resisted its rival's offers to merge despite multiple requests to engage in discussions following the disclosure of Simon's investment in November 2014, and has reportedly considered adopting potential takeover defense measures with its advisers.

Simon released a letter sent to Macerich Chairman and CEO Art Coppola stating, "It has now been well over a week since we met to discuss Simon's interest in acquiring Macerich, and I am disappointed you have not gotten back to me as you said you would. I am therefore providing you with a written proposal confirming the basis on which Simon proposes to acquire Macerich. As discussed, this transaction has strong strategic logic and would bring substantial value to our respective shareholders."

Simon's pursuit of Macerich follows the pattern previously set by the world's largest retail property owner in its bid to acquire General Growth Properties in 2009 shortly after GGP sought Chapter 11 bankruptcy protection. On February 16, 2010, Simon went public with its bid after GGP resisted Simon's overtures. The GGP board favored an investment offer from Brookfield Asset Management and Simon withdrew its offer in May. No doubt it hopes its pursuit of Macerich turns out differently.

Meanwhile Macerich confirmed that it had received an "unsolicited, conditional proposal" to acquire the company for $91.00 per share in cash and stock from Simon. Macerich said its board of directors will review the proposal with its financial and legal advisors, and urged stockholders to take no action at this time.

Analysts say Macerich's 54 million-square-foot portfolio is especially attractive to Simon. Macerich currently owns 51 regional shopping centers located in many of the country's most-populated markets, with a significant presence on the West Coast, Arizona, Chicago and the Metro New York-Washington, D.C. corridor.

The crown jewel in the Macerich portfolio is considered to be Tysons Corner Center, a 2.1 million-square-foot super regional mall in the northern Virginia suburbs outside Washington, DC. A major expansion is underway that will add a 30-story, 430-unit apartment tower and a 300-room Hyatt Regency hotel expected to reach completion in the first half of 2015. The new multifamily and hotel components are in addition to the 527,000-square-foot office tower which opened in August 2014 with major tenants Intelsat and Deloitte.

Most recently, Macerich has been consolidating its ownership in several of its mall properties. In November 2014, the company bought out its joint venture partner's 49% interest in Queens Center, Washington Square, Los Cerritos Center, Stonewood Center and Lakewood Center from a wholly-owned subsidiary of the Ontario Teachers' Pension Plan Board for $1.8 billion, including the assumption of $672 million of property-level debt. As part of the transaction, Macerich agreed to issue approximately 17.1 million shares of common stock, representing a 10.9% common ownership stake in the company, to the pension fund subsidiary to fund the balance.

Also in November 2014, Macerich bought out joint venture partner AWE Talisman's 40% interest in Fashion Outlets of Chicago for $70 million to own the recently-developed, 529,000-square-foot center outright.

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