Developer Mills Corp. Agrees to Buyout

Shareholder Finds Fault With $1.35 Billion Sale

Washington Post Staff Writer
Thursday, January 18, 2007; Page D01

Chevy Chase shopping-mall pioneer Mills Corp. yesterday agreed to a $1.35 billion sale to a Canadian investment company, capping months of turmoil in which the firm struggled with heavy debt and an accounting scandal.

The deal, which at least one major Mills shareholder called inferior to other offers, would give the owner of Potomac Mills in Virginia and Arundel Mills in Maryland a financial boost after the company reported it had enough cash to operate only through March 31.

The buyer, Brookfield Asset Management, the owner of New York's World Financial Center, would take control at a time when Mills is under investigation by the Securities and Exchange Commission for possible misconduct by management and for accounting errors totaling up to $352 million.

The sale marks the latest chapter in the Mills saga. The local company helped popularize the notion that a shopping mall could be an entertainment destination. It also built sprawling "shoppertainment" centers throughout the United States and Europe that combined retail outlets with outsize restaurants, movie theaters and other amenities. One project, Madrid Xanadu, featured a bowling alley and indoor ski resort. Another Xanadu, planned for New Jersey, was to have a 30-story Ferris wheel.

But in recent weeks, an internal review at Mills found the company's rapid growth may have contributed to its accounting problems. The company has been working to restate earnings dating to 2001, and its stock price has been battered in the past year. The review concluded that Mills' "overall culture and 'tone at the top' were heavily focused on meeting external and internal expectations," according to a summary filed with the SEC.

Under the deal announced yesterday, Brookfield will pay $21 per share for Mills. The deal, including debt and preferred stock, is worth $7.5 billion. Mills will become a new subsidiary of Brookfield, and the new company will be publicly traded and managed by Brookfield.

Mills shareholders may either receive up to a 20 percent stake in the new company or receive $21 per share in cash. Mills' board unanimously approved the deal though it is subject to shareholder approval, and some may oppose the offer. Two other major Mills investors had offered to invest hundreds of millions of dollars in the company just a day earlier.

Farallon Capital, a hedge fund, offered to invest $499 million at $20 a share. Fund managers declined to comment yesterday. An Israeli real estate company, Gazit-Globe, offered an average of $21 a share.

"We are disappointed that the Mills Corporation has chosen to accept what we believe is an inferior proposal," Bruce Rubin, a spokesman for Gazit, said in a statement, according to the Associated Press. He added that Gazit is reviewing its options.

If the Brookfield deal is approved, it is slated to close in the second half of 2007.

"We think this is a significant opportunity to build on our depth of experience in real estate and assist a company that's in operational and financial distress," said Katherine C. Vyse, a spokeswoman for Brookfield, which manages $50 billion in assets and owns hydroelectric power plants and office buildings throughout the country, including 23 in the Washington area. "We see it as an opportunity to return [Mills] to profitability and foster growth," Vyse said.

Mills chief executive Mark Ordan said he does not foresee layoffs and expects the company, with 300 employees locally, to remain in its new headquarters on Wisconsin Avenue.

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