CSC Scoffs at Simon’s $4.6B Acquisition Proposal

Simon Property Group Inc., the largest real estate company in the United States, extended an offer to acquire Capital Shopping Centres Group PLC, the United Kingdom's leading shopping center REIT, for 425 pence per share in cash, or approximately $4.6 billion. CSC wasted precious little time responding to Simon with a very firm "No."

December 15, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user LancerE

Simon Property Group Inc., the largest real estate company in the United States, extended an offer to acquire Capital Shopping Centres Group PLC, the United Kingdom’s leading shopping center REIT, for 425 pence per share in cash, or approximately $4.6 billion. CSC wasted precious little time responding to Simon with a very firm “no.”

Actually, the offer was not really an offer, but more of a suggestion, according to Simon. The company proclaims in its letter to CSC’s Board of Directors that the document serves as neither a formal offer to buy CSC nor a commitment to make one. Nevertheless, the letter points out that Simon’s suggested 425 pence per share marks a 26 percent premium over CSC’s closing 337 pence per share price prior to the commencement of the November 24 offer period; a 21 percent premium over the average daily closing price for the six months before November 24; and a 7 percent premium over the December 14 closing price of 396 pence per share. CSC owns 13 regional shopping centers encompassing a total 14.1 million square feet.

Simon also touted its ability to finance the CSC acquisition, noting that it has an equity market capitalization of about $34 billion and is in the process of ironing out the details of a bridge loan facility of approximately $4.6 billion for the proposed transaction. Simon’s proposal, however, has a few conditions as well. CSC’s $2.4 billion definitive agreement to purchase the Trafford Centre Group–owner of the 1.9 million square-foot Trafford Centre retail and leisure complex near Manchester, England–from Peel Holdings plc cannot have closed at the time of the acquisition of CSC. “We believe that we should work together to announce a recommended offer, and would urge you to listen to calls from your shareholders–many of whom we have spoken to–opposing the Trafford Centre transaction,” David Simon, CEO and Chairman of the Board, wrote. Simon also noted that it must have access to satisfactory due diligence and obtain the green light from its Board.

CSC, quite clearly and deeply offended, responded to Simon’s letter immediately. “The Board of CSC believes that this is yet another attempt by Simon to frustrate the Trafford Centre acquisition without putting forward a proper proposal for CSC shareholders to consider as an alternative, and accordingly unanimously rejects the proposal,” as per a company press release. “Notwithstanding this, the Board has concluded that it is appropriate to adjourn the EGM to endeavour to ensure that CSC’s shareholders are provided with the necessary information about the proposal to make a clear decision.”

CSC deemed Simon’s proposal “inadequate,” contending that the 425 pence per share offer undervalues the company and that its portfolio would “generate long-term attractive returns for shareholders significantly superior to Simon’s cash proposal.” The company also noted that the Trafford Centre purchase would enhance the its value. Additionally, CSC also ridiculed Simon’s due diligence demand and its stipulation that the deal is conditional upon the approval of its own Board. And there is much more; CSC has a long list of criticisms pertaining to Simon’s offer.

And the issuance of press releases did not stop there. Later today, in a statement supporting CSC’s decision to adjourn its proposed EGM until late January of next year, Simon hyped its offer once again. “The conditions set forth in Simon’s indicative offer are customary and should pose no barrier towards consummating a transaction,” the company noted. “Simon’s board is fully supportive of the indicative offer, and given Simon’s strong balance sheet, access to capital and track record of successfully completing acquisitions, there can be no serious doubt as to Simon’s desire and ability to complete the proposed transaction.”

Presently, Simon owns or has interest in 393 retail assets accounting for an aggregate 264 million square feet of space in North America, Europe and Asia.