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Window shopping

17 March 2015 By Jeffrey Goldfarb

U.S. operators of fancy retail complexes are showing similarities to far-flung bazaar traders. Mall owner Macerich rejected an unwanted $22 billion takeover bid from larger rival Simon Property. The premium on offer may be less valuable than claimed. Even so, the target company’s response is the more disingenuous haggle.

Simon bought a small stake in Macerich last summer, before making public a $91-a-share offer for the whole company last week. It touted a 30 percent bump to where its quarry’s stock traded when Simon’s initial investment was first revealed in mid-November. Around that time, Macerich valued its own shares at $71 apiece in a deal with the Ontario Teachers’ Pension Plan.

By March 4, when the Wall Street Journal reported that Simon had made a takeover approach, Macerich shares were trading at about $84. Some of the increase is probably due to Simon’s interest, but there could be other reasons why Macerich stock has outperformed peers. For instance, it hosted an investor day on Nov. 18 that showcased its improving balance sheet and collection of shopping centers. At the very least, Simon has picked the top of the available range to assess the extra money it is offering for control.

Macerich has applied guile on its side of the negotiation, too. For years, the company has put its directors up for a vote annually, but just staggered its board so that a third of them are elected each year. It’s a change allowed without a shareholder vote in Maryland, where the real estate investment trust is incorporated. The move prevents Simon from taking full control of the Macerich board with a slate of its own.

The defensive response might have been triggered in part by Simon’s opaque deal to sell some assets to another big competitor, General Growth Properties, as part of its Macerich bid. That could theoretically reduce the chances for a rival offer. And the timing, right around board nomination time, will have put added pressure on Macerich.

Nevertheless, deciding whether Simon’s price is high enough should have been left to Macerich shareholders, not taken out of their hands. After all, they could vote against any Simon board nominees. And new directors, once installed, are obliged to act in the best interest of all shareholders. In governance matters, Macerich just closed up shop.


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