Simon Property abandons offer for Capital Shopping

January 11, 2011

Simon Property Group Inc., the largest U.S. shopping mall owner, abandoned its $4.5 billion bid for Capital Shopping Centres Group Plc after the British company resisted Simon’s takeover interest.

Simon doesn’t plan to make a formal offer for Capital Shopping because the company won’t give Simon access to its accounts, the Indianapolis-based mall investor said in a statement Tuesday. Simon made a conditional bid of 425 pence a share in cash on Dec. 15, valuing Capital Shopping at 2.9 billion pounds ($4.5 billion). On Jan. 7, Capital Shopping said it was worth as much as 625 pence a share to a bidder.

Capital Shopping “has refused to share any due diligence information with Simon,” the company said in the statement. “Simon therefore has no alternative other than to announce that it does not intend to make an offer” for all of Capital Shopping’s shares.

Buying Capital Shopping would have let Simon enter the U.K., Europe’s largest economy outside the euro region. Capital Shopping owns four of the U.K.’s 10 biggest malls, including the Manchester Arndale. This was the second time in the past year that the U.S. company faced resistance from a takeover target. It pursued General Growth Properties Inc., the second-biggest U.S. mall owner, for three months in 2010 after being rebuffed. Simon withdrew that offer in May.

General Growth, in bankruptcy at the time it was pursued by Simon, favored a rival proposal to keep it independent and proceeded with that deal. General Growth emerged from the largest U.S. real estate bankruptcy on Nov. 9.

Capital Shopping fell as much as 5.5 percent in London trading Tuesday. The shares were down 5.5 pence, or 1.4 percent, at 387 pence shortly before 11 a.m. there. They remain about 14 percent higher than the close on Nov. 24, the day before Simon’s interest in Capital Shopping was disclosed.

“They don’t have to open their books to a predator as long as they’re happy that the shareholders aren’t going to be too aggressive with the board if they refuse to do so,” said Alan Carter, an analyst at Evolution Securities Ltd. in London. Evolution has a “sell” rating on Capital Shopping, which is unrelated to the bid.

Capital Shopping said on Jan. 7 that it had changed the terms of an agreement to acquire the Trafford Centre mall in the English city of Manchester. Simon’s bid, which Capital Shopping said was inadequate, depended on Capital Shopping abandoning the Trafford Centre agreement.

Simon owns 5.1 percent of Capital Shopping, according to data compiled by Bloomberg. The U.S. company said Tuesday that it continues to oppose the “value-destructive” Trafford Centre deal and urged Capital Shopping shareholders to vote against it at a meeting Jan. 26.

Capital Shopping’s major shareholders will probably support the Manchester mall purchase, said Mark Kelly, special situations sector strategist at Olivetree Securities.

“Simon will likely sell its CSC stake as a result of this, but we sense there is sufficient demand for this stock from South African institutional shareholders to ensure this doesn’t act as too much of an overhang,” Kelly said in an e-mailed statement.

Wendy Baker, a spokeswoman for Capital Shopping, didn’t immediately respond to a call seeking comment.

Capital Shopping owns the highest quality portfolio of shopping centers in the U.K. and has better business prospects than some competitors, though there still isn’t much growth potential in the industry, Liberum’s Horwood said. His rating on the shares is under review following Simon’s announcement.

Simon reduced its European holdings last year by selling its interest in a joint venture that owned seven shopping centers in France and Poland. The company recorded a gain on the sale of $281 million, according to a regulatory filing.

The Indianapolis company gets 3.5 percent of its net operating income from international operations, according to a third- quarter report. It also owns shopping centers in Japan, Mexico and South Korea.


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