Simon’s options for Capital Shopping takeover dwindling

Simon Property Group Inc. may be running out of options in its quest to take over Capital Shopping Centres Group Plc and become the largest mall owner in the United Kingdom.

“It’s either Simon goes hostile with an aggressive bid or drops it completely,” Craig Guttenplan, an analyst at CreditSights in London. “This chipping-away strategy doesn’t seem to be working.”

Capital Shopping on Sunday rejected a financing plan from Indianapolis-based Simon for the U.K. landlord’s $2.5 billion (1.6 billion pound) proposed purchase of the Trafford Centre mall in northwest England. The investment would have boosted the biggest U.S. mall owner’s stake in its British counterpart.

Simon said last month it was considering an unspecified cash bid for Capital Shopping and asked the London-based company to delay a shareholder vote on the mall purchase, a request that was turned down. The U.S. landlord said last week it would end its quest for Capital Shopping if the company doesn’t provide information needed to evaluate a bid.

Simon said Sunday it would be prepared to subscribe to a sale of 205.5 million Capital Shopping shares at 400 pence ($6.30) each. The proposal, which Simon said was “more attractive” to the U.K. company’s shareholders than the current financing plan, would include a sale of 209 million pounds ($329 million) of convertible bonds by Capital Shopping.

The financing proposal by Simon, which has owned at least 3 percent of Capital Shopping since August 2008, would give Simon a holding of 18.4 percent to 26.9 percent in the British mall owner and a seat on its board, according to Capital Shopping.

The plan was rejected because Capital Shopping can’t unilaterally change a binding agreement to buy Trafford Centre, the company said. Simon has said Capital Shopping is paying Peel Group too much for the mall in Manchester, England.

Peel has no intention of selling the mall for cash, even if it resulted in a higher price, the company said in a separate statement Monday. Peel wants a stake in Capital Shopping to diversify its U.K. shopping-mall holdings.

Should Simon not buy Capital Shopping, it would be the second time in a year the mall owner failed at an attempted takeover. Earlier this year, Simon dropped a bid for U.S. rival General Growth Properties Inc., which filed for the largest-ever U.S. real estate bankruptcy in April 2009. General Growth emerged from Chapter 11 a month ago.

Simon is a smart buyer that doesn’t overpay for acquisitions, said both Guttenplan of CreditSights and Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York.

“We continue to believe that SPG will maintain its investment discipline and only do a deal that is accretive essentially from day one rather than accretive on a longer term basis,” Goldfarb wrote in a report Monday.

The mall owner expects to keep increasing its income even if its effort to buy Capital Shopping fails. David Simon, the company’s chairman and CEO, said last month, before disclosing his interest in Capital Shopping, that Simon may post record earnings per share next year.

The company may boost profits by increasing occupancies at its malls and redeveloping properties, said Keith Bokota, an analyst at Principal Global Investors. Its parent company, Des Moines, Iowa-based Principal Financial Group Inc., owned 3.8 million shares of Simon at the end of September, according to data compiled by Bloomberg.

Simon is likely to spend $1.5 billion on the redevelopment of 16 properties, with work beginning on two to four projects in 2011, David Simon said last month.

“They have not stagnated,” Goldfarb said in a telephone interview last week. “They’re growing every day.”

Simon shares rose 44 cents, to $99.39 each, in Monday afternoon trading. They have gained 25 percent this year.

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