Macerich Co.’s rejection of a $16 billion buyout offer and adoption of takeover defenses leaves Simon Property Group Inc. with few options but to make a higher bid to win the mall landlord.
Indianapolis-based Simon, the largest mall owner, is probably the only U.S. real estate investment trust likely to chase Macerich because it already has a deal with General Growth Properties Inc., the No. 2 company in the industry, as part of its pursuit. While other suitors may step in, Blackstone Group LP, the biggest private-equity owner of real estate, is unlikely to lead a future bid for Macerich, a person with knowledge of the firm’s thinking said.
Macerich shares fell after the company rejected Simon’s offer Tuesday, saying the $91-a-share bid substantially undervalued the company. Santa Monica, California-based Macerich also said it would stagger the election of its directors, making it more difficult to oust the board, and adopted a “poison pill” defense that raises the price Simon would have to pay in a takeover.
“Macerich shares still trade above the $91 offer price, as Simon will probably come back with a higher proposal,” Jeffrey Langbaum, a REIT analyst for Bloomberg Intelligence, said in a report Tuesday. “Also, it is possible another investor, perhaps one that Macerich management is more willing to partner with, will come in with a topping bid.”
Macerich shares dropped 3.5 percent, to $91.60 each. The shares had climbed after Simon made its offer on March 9, closing Monday at $94.89, indicating investors expected a higher bid. Simon stock fell 0.5 percent Tuesday, to $186.13.
‘Provide time’
The "governance changes reduce the likelihood of a sale” in the near term to Simon, Stifel Nicolaus & Co. analysts led by Nathan Isbee wrote in a report Tuesday. The analysts spoke to Macerich management, which stressed that the measures are temporary and “simply serve to ‘provide time’ for the board to properly assess the best course of action,” Isbee wrote.
Blackstone, which had been seen by some as a potential friendly buyer for Macerich, hasn’t held talks to organize a competing proposal, the person with knowledge of the matter said. The New York-based firm is unlikely to lead a future bid for Macerich, said the person, who wasn’t authorized to speak publicly.
Blackstone had invested with partners in 2010 to bring General Growth out of bankruptcy and sold its shares at a profit three years later. The firm also has been expanding in high-quality, well-leased real estate through a new fund to acquire so-called core-plus properties.
Expensive target
Unlike General Growth at that time, Macerich trades at a premium to its biggest competitors, based on relative ratios of net operating income to enterprise value — a company’s stock- market value plus debt. That ratio, known as an implied capitalization rate, is 4.3 percent for Macerich, compared with 5 percent for Simon and General Growth, according to a March 13 report by research firm Green Street Advisors LLC. The lower the ratio, the higher the value.
Given the more than 30-percent jump in Macerich stock since Simon disclosed its stake in November, the company is a relatively expensive target.
Buying Macerich would expand Simon’s reach at a time when high-quality retail centers rarely come up for sale. Macerich’s properties include Tysons Corner Center in Virginia, Fashion Outlets of Niagara Falls in New York and Santa Monica Place in Southern California.
‘Irreplaceable assets’
Macerich said its board unanimously determined that Simon’s offer “fails to reflect the full value of our portfolio of unique and irreplaceable assets and our positive growth prospects,” Chairman and CEO Arthur Coppola said in a statement Tuesday.
Macerich said Tuesday that it received a letter from Simon indicating the REIT was contemplating the nomination of five candidates to company’s board. Macerich also said it plans to spend $400 million to $500 million annually on development projects over the next five years “that it expects will materially enhance stockholder value.”
The company’s “scorched earth” rejection of Simon’s offer is based on a “rosy view of its future prospects,” Simon Chairman and CEO David Simon said in a statement Tuesday.
Macerich’s decision to stagger its board without shareholder approval “would be poor corporate governance at any time, but it is particularly egregious given that we recently notified Macerich that, should the need arise, we would nominate a number of candidates that would constitute only a minority of their board,” he said. “Macerich clearly does not believe its shareholders can be trusted to decide the composition of its board when the value of their investment hangs in the balance.”
Macerich’s “high-quality portfolio” probably will draw a large number of potential suitors, including pensions, private- equity firms and sovereign-wealth funds, according to Isbee.
“Most ‘A’ malls are owned by public mall REITs, and this is probably the last chance to acquire an ‘A’ mall platform,” he wrote.
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