Simon Proposes to Macerich, But is the Ring Big Enough?

By Barbra Murray, Contributing Editor

Simon Property Group Inc.’s proposed $22.4 billion acquisition of The Macerich Co. is producing the usual commotion that follows a multi-billion buyout offer: criticism, congratulations, speculation and the like. With Macerich Co. having confirmed its receipt of Simon’s unsolicited proposal to acquire the regional mall owner and developer for $91 per share in cash and stock, along with the assumption of $6.4 billion of existing debt, the REIT sector and its watchers eagerly await the next move.

Buzz about a potential offer has been swirling for months. So Simon has gone down on one knee, and now the big question becomes whether or not Macerich will say yes. Macerich can’t hold out forever, with Simon CEO David Simon having just sent a letter to Arthur Coppola, CEO of Macerich, writing that he is “disappointed you have not gotten back to me as you said you would.” (No thinly veiled hostility there).

So Simon has gone down on one knee, and now the big question becomes whether or not Macerich will say yes. As detailed in its note on the proposed acquisition, brokerage and investment banking firm Stifel suggests that Macerich, placing a high value on its own notable development and redevelopment opportunities, will likely reject Simon’s offer of $91 per share and potentially spur a long takeover battle. Perhaps $16 billion is something to sneeze at in this case-or perhaps not.

“It’s very difficult to say what a very good regional mall is worth; that’s the hard part of this whole exercise,” Rich Moore, an analyst with investment banking firm RBC Capital, told Commercial Property Executive. “Regional malls grow very nicely, they’re marquis, consumers want to shop at them, as such tenants want to be there and they pay ever-higher prices to be there. So it’s very hard to say exactly what a good price would be.” Like Stifel, Moore believes $91 per share may not do the trick.

“I think Simon will have to go as high as $100 to really get this to happen,” Moore suggested. “Would they really do that? They might. Class A regional malls are a little bit like Disneyworld; they’re wonderfully entertaining places that are unique in the environments that they’re in and as such, you might be willing to go to a pretty lengthy extreme to get these properties.”

While analysts and industry experts ponder the “will they or won’t they” issue and the “is the price right” question, the ratings community looks at the potential impact of the purchase from another perspective. Fitch Ratings stated that should the current offer go through, it “would likely have negative credit implications for Simon,” increasing the REIT’s leverage while decreasing its unencumbered asset coverage of unsecured debt.

And what’s a mega-merger proposal without a few threats of legal action?  Law firm Rigrodsky & Long P.A. announced that it has commenced an investigation into potential legal claims of Macerich’s board of directors’ possible breaches of fiduciary duties pertaining to the company’s receipt of Simon’s offer.

While REIT watchers scrutinize the notion of a Simon-Macerich marriage, they’re also pondering the potential ramifications of such a transaction, they’re wondering if Simon’s acquisition of Macerich will spur more mergers among the big Class A shopping center REITs, such as General Growth Properties and Taubman.

“It’s always the question that comes up when two REITs end up combining. Everyone’s thinking, here we go; here comes the wave of mergers. But you know, it never happens,” Moore added. “It’s always just that a particular combination made sense at that time. One went after the other and they had a protracted negotiation of some kind and it ended up occurring, and then that was the end of it.”