Bidding war rages on
for Franklin Mills mall

By William Kenny
Times Staff Writer

If you believed the news releases in mid-January, you might have thought that the bidding war for the Mills Corporation had reached its climax with a Canadian real estate investment firm entering an agreement to take over the troubled mega-mall owner.
At the time, Maryland-based Mills and Brookfield Asset Management jointly announced that they expected the latter firm’s offer of $21 per share of outstanding common stock to be finalized late this year for acquisition of the mall developer’s properties.
In reality, the war was just beginning.
On Feb. 16, two other bidders — Indianapolis-based Simon Property Group and San Francisco’s Farallon Capital Management — emerged as the victorious suitors with their joint $25.25 common-share bid. That day, Mills pulled out of its agreement with Brookfield and signed a new one with Simon and Farallon.
As was the case with the Brookfield deal, the new would-be owners are saying little of their specific intentions for Mills’ 38 shopping malls in the United States, including Northeast Philly’s expansive Franklin Mills.
But whereas Brookfield — one of North America’s largest office-building owners — was looking to use the Mills properties as a springboard into the American retail real estate market, Simon already manages a large portfolio of malls, including Oxford Valley Mall, King of Prussia Mall, Springfield Mall, Montgomery Mall and the Granite Run Mall in the Philadelphia suburbs.
According to company spokesman Nathaniel Garnick, Simon is the largest real estate investment trust in the country and "the pre-eminent mall operator and owner in the country with 286 properties."
In a printed statement, Simon Property CEO David Simon said in part, "The Mills properties are an excellent strategic fit with our existing retail assets."
Farallon was the largest single stockholder in the Mills Corp. at the time of the tender-offer agreement, holding almost 11 percent of the company’s shares.
The parties expected the cash tender to commence before the end of February, a joint news release said. The companies have issued no statements since announcing the deal.
Simon and Farallon beat out at least two other bidders to obtain the Mills board’s latest approval of a cash tender offer.
According to government filings and statements from the involved parties, Israeli real estate investor Gazit-Globe Ltd., already a 9 percent owner in Mills, tabled a $21-per-share recapitalization plan on Jan. 12. In all, Gazit offered to invest $1.1 billion in cash to help Mills manage its way out of reported $4.8 billion in debt.
Gazit sought control of the Mills board as part of the deal.
On Jan. 15, Farallon put forth a $499 million recapitalization offer at $20 per share. At the time, Mills shares were trading on the New York Stock Exchange at under $16.
On Jan. 17, Brookfield emerged with a $21 per share, a $1.35 billion acquisition proposal. Brookfield also would have assumed Mills’ outstanding debt.
Gazit responded with a $22-per-share bid, but did not win the Mills board’s approval. The board entered an agreement with Brookfield.
On Feb. 5, Simon came forward to team with Farallon on a $24-per-share offer. The bidders stated that they would be able to close their tender offer at least six months earlier than the Brookfield deal, making it more attractive to existing Mills stockholders.
Mills shares began that day trading at $22.15, indicating a belief by investors that Brookfield’s $21-per-share bid would be trumped, market analysts have said.
Mills used an escape clause to back out of the Brookfield deal, stating that the $24 Simon/Farallon bid constituted a "superior competing transaction" when compared with the Brookfield offer.
It is unclear why Simon and Farallon then increased their offer to the final $25.25-per-share figure. A source familiar with the deal said that it was likely that Brookfield made an improved offer of its own, prompting the final increase.
Market analysts have said that despite Mills’ well-documented troubles, the company remained attractive in the real estate investment sector because of the desirable locations of its properties.
Mills is under investigation by the Securities and Exchange Commission for faulty accounting. In recent months, it has cut hundreds of corporate jobs, sold off a series of international properties, backed out of a high-profile mall development in New Jersey’s Meadowlands and undergone major upheaval in its senior management ranks.
Some good news preceded the Simon/Farallon bid on Jan. 24 when Mills announced that the Goldman Sachs Mortgage Co. had agreed to give Mills an extension to pay back a $1 billion loan that was threatening to force the mall owner into Chapter 11 bankruptcy.
Repayment of the May 2006 loan was originally due on Dec. 31, 2006, then extended to March 31. The due date has been extended again, to Jan. 31, 2008, with possible further postponement to April 30, 2008. ••
Reporter William Kenny can be reached at 215-354-3031 or bkenny@phillynews.com