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Mills Receives Another Buyout Offer

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By Dana Hedgpeth
Washington Post Staff Writer
Tuesday, February 6, 2007

The nation's largest mall owner and a hedge fund yesterday offered to buy the financially troubled Mills Corp. for $1.6 billion, exceeding the $1.35 billion offered by a Canadian company in January.

The latest offer for Mills of Chevy Chase, which owns about 40 malls nationwide, including Potomac Mills and Arundel Mills, was made by Simon Property Group and the hedge fund Farallon Capital Management. Simon is the country's largest real estate investment trust, by market value, and Farallon is Mills's largest shareholder.

Brookfield Asset Management, a Canadian investment company and owner of the World Financial Center in New York, made the earlier offer, which Mills accepted.

Simon, of Indianapolis, owns 285 properties across the country, including Bowie Town Center and Leesburg Corner Premium Outlet. Farallon of San Francisco manages $26 billion of equity capital.

Simon, which presented its offer in a letter yesterday, would pay $24 per share and assume Mills's debt. Brookfield would pay $21 per share. Mills closed yesterday at $25.87, up $3.72 on the New York Stock Exchange.

Simon said its cash tender offer would allow Mills shareholders to get their cash as much as six months earlier than they would under Brookfield's deal.

Executives at Mills declined to comment on the offers. In a statement, Mills said that it would "promptly consider the proposal" from Simon but that the "current merger agreement with Brookfield remains in effect."

The offers came as Mills is under investigation by the Securities and Exchange Commission for possible misconduct by management and for accounting errors totaling up to $352 million. Mills is best known for popularizing the notion of shopping mall as entertainment destinations. One of its projects, Madrid Xanadu, featured a bowling alley and indoor ski resort.

But some analysts said the company had trouble keeping up with its ambitious plans. Mills has not released an earnings report since the third quarter of 2005. It plans to restate its financial results from 2001 to 2004 and for the first three quarters of 2005. Its chief executive, Laurence C. Siegel, retired in 2006.

And in January, the company warned that it may be forced to seek bankruptcy protection. It has given up its role in the Xanadu project in New Jersey and sold off other assets.

Analysts said the Simon and Brookfield offers show the eagerness of large companies to pay high prices for commercial real estate.

"It is a little surprising that Simon made an offer for more, especially given the fact that there is no new information to show that Mills is worth $24 a share," said Benjamin Yang, an analyst at Green Street Advisors. "They still have not restated their financials, and coming up with a value for them is exceedingly difficult.

Still, he said "the mall industry has gone through a period of consolidation. Simon has the opportunity to acquire 30-odd properties in one fell swoop."

Paul Morgan, managing director at Friedman, Billings, Ramsey Group, said Simon has an opportunity to "create a synergy in its leasing with tenants."

"Mills has been in turmoil for the last 18 months," he said. "A lot of talent has left Mills. Assets are not being managed as well as they could be by someone like Simon."


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