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Simon Says Buy:Taubman Says No.Wall Street Saysa Sale is Inevitable

Taubman Centers yesterday dismissed an unsolicited $1.48 billion cash bid by rival Simon Property Group — and said any sale would not be in the interest of its shareholders. But Wall Street analysts believe the REIT will get gobbled up sooner or later by one of its competitors.

Simon’s bid, to pay $17.50 per share for the Bloomfield Hills, Mich.-based company, represents a nearly 20% premium over TCO’s closing price of $14.80 on Tuesday, before the bid was revealed. At mid-day Thursday, the shares were up to around $17. The acquisition would give the Taubman properties an 8.0% cap rate.

Analysts say that Indianapolis-based Simon will have to up the ante if it wants to convince Taubman brothers Robert and William, who control 36% of voting stock, to sell. According to Salomon Smith Barney, the unsolicited bid came after chairman and CEO Robert Taubman rebuffed Simon’s attempts at friendly merger discussions.

"This offer represents a valuation well in excess of where the shares have traded any time in the past and well in excess of where the shares may trade in the foreseeable future," writes Salomon Smith Barney analyst Jonathan Litt in a report released today. "In the era of heightened scrutiny on corporate governance, the board, or more specifically the two Taubman family members on the board, will eventually accept an enhanced offer from Simon or other suitors." If Taubman continues to stonewall Simon, Litt says, a bidding war could ensue, bringing in such potential buyers as General Growth Properties and Westfield. Salomon Smith Barney provides financial services to Simon.

Deutsche Bank Securities analyst Louis Taylor predicts the battle over Taubman Centers will take two or three months.

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