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Mills Lands a Buyer

Embattled Mills Corp. today entered into a definitive agreement to be acquired by Canadian-based office owner Brookfield Asset Management Inc. for $7.5 billion, presumably ending a year-long downward spiral that threatened to leave Mills investors empty-handed.

The offer represents a price of $21 per share for Mills’ stock, plus assumed debt and preferred stock. It is expected to be completed in the second quarter of 2007, and will make Mills a subsidiary of Brookfield, an asset manager with $50 billion worth of properties in the United States. (Mills stock had been trading at $17.77 per share before the deal was announced.)

“We believe the transaction with Brookfield not only provides certain value to the Mills’ shareholders, but also affords them the opportunity to participate in the upside potential created by this transaction,” said Mark Ordan, CEO and president of Mills, in a prepared statement.

REIT analysts are surprised that Brookfield emerged to purchase Mills. Its name had not popped up previously as a suitor. And their offer also caught some off guard.

“Brookfield is kind of an interesting name for us because they focus primarily on the office sector," says Akash Dave, of Morningstar. "But given their investment philosophy, the deal makes sense - they like markets with high barriers to entry, stable cash flow assets and they like to purchase at low valuation. ... There might be some components to the offer that maybe Gazit-Globe and Farallon didn’t have. But I certainly wouldn’t be surprised if there is a counter-offer in the works.”

In addition to receiving $21 in cash for each share of Mills’ stock, Mills’ shareholders will be given the choice to receive up to 20 percent of the outstanding shares of the new company.

Of course, there is still some controversy at hand. Yesterday, two major Mills shareholders, Farallon Partners and Gazit-Globe Ltd., each issued statements detailing offers to infuse the troubled company with cash. Farallon offered $499 million. Gazit-Globe, which offered to recapitalize Mills with $1.2 billion in October, increased its offer to about $1.8 billion. In December, Mills and Gazit-Globe had agreed on a joint board of directors slate that was voted on during Mills shareholder meeting late last month.

Neither group could be reached to comment on the proposed Brookfield deal.

The proposed purchase closes a troubling last chapter in Mills’ history – the company has been under investigation by the Securities and Exchange Commission for accounting irregularities and has lost value since November 2005. With Brookfield assuming Mills’ debt, the deal also eliminates the threat of bankruptcy.

On Jan. 9, Mills filed an 8-K report that warned it might not be able to carry the $1 billion senior term loan from Goldman Sachs it took out last spring in an effort to reposition itself. Auditors also found that accounting errors in Mills’ 2005 financial statements could reduce shareholders’ equity by as much as $350 million. The company’s stock fell to its 52-week trading low the following day, hitting $12.07 per share.

-- Elaine Misonzhnik
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