Simon Property Group may be the country’s biggest retail landlord, with holdings in the regional mall, outlet center and shopping center sectors, but that’s apparently not enough for the REIT’s executives. On Monday, the news became official—Simon is making a hostile takeover attempt on rival Macerich Co., with an offer of approximately $91 per share, according to the New York Times. Reportedly, Macerich executives have previously declined to entertain a friendly acquisition offer, which is why Simon’s CEO David Simon decided on trying another route.
Why would Simon want to make a bid for Macerich in the first place? Reuters reports that a merger would allow the combined companies to have more power in negotiating leases with mall retailers, as well as provide a way for Simon to expand in California and Arizona, where many Macerich malls are located. Macerich owns a portfolio of 53 retail centers.
Fortune notes that “Simon would also be buying a well-managed mall owner with quality properties, Green Street Advisors said in a note after Simon disclosed its initial stake in Macerich. ‘Macerich is a highly capable operator of its assets and the portfolio has improved over the past few years.’”
In addition, with scant mall development opportunities left in the U.S. and little room for improvement in Simon’s already stellar property fundamentals, mergers and acquisitions are one of the few growth avenues it has left, according to REIT analysts. As far back as November, when Simon initially revealed it was buying Macerich’s stock, industry insiders predicted a merger would eventually be on the table:
“‘The bottom line comes down to ‘they are just not building,’ says Todd Sullivan, general partner with Westborough, Mass.-based Rand Strategic Partners and author of the blog Value Plays. ‘And for Simon, it makes more sense to buy one of these smaller players than go out and build one or two malls from scratch.’”
According to the Wall Street Journal, Macerich officials said they will review Simon’s offer and asked their company’s shareholders not to make any decisions for now.
“‘The board is probably going to try and get a higher offer if they are interested in selling,’ said Alexander Goldfarb, an analyst who covers real-estate investment trusts for Sandler O’Neill + Partners LP. ‘People assume that if there’s going to be a deal, $91 is just the starting point,’” WSJ reported.
The article went on to add that publicly-traded REITs make for challenging takeover targets because many state laws protect them from hostile bids. This happens to be the case in Maryland, where Macerich is incorporated. The state reportedly limits the ability of major REIT shareholders to buy up too many shares without first seeking the approval of the REITs’ board of directors.
A merger between two of the biggest mall owners in the country may also attract the attention of the Federal Trade Commission, which may be why Simon is planning to sell some Macerich assets to rival General Growth Properties if the deal goes through, according to USA Today.
In the meantime, Macerich shares rose 6 percent, to $91.93 per share, on news of the takeover attempt.