Despite the meteoric rise of online shopping, traditional malls still occupy prime real estate in the retail landscape — as evidenced by the $16-billion bid for Macerich Co., owner of Santa Monica Place and dozens of other shopping centers.
The unsolicited bid came Monday from rival Simon Property Group Inc., setting the stage for a hostile takeover that would combine two of the nation's largest mall owners. The amount underscored the value of old-school shopping centers in sought-after areas.
Simon said Monday that it had offered Macerich shareholders $91 a share in equal amounts of cash and stock. The bid represents a 30% premium to Macerich's closing stock price of $69.88 on Nov. 18, the day before Simon disclosed that it had made a 3.6% investment in Macerich.
"I understand why Simon wants Macerich," said real estate analyst Craig Silvers, president of Bricks & Mortar Capital. "Macerich has a great collection of shopping centers, malls and outlet centers, predominantly in solid and growing markets."
Mall operators have faced challenges in recent years from the sharp increase in online sales, the success of non-mall discounters such as Wal-Mart and Costco, and the loss of tenants through mergers or business reverses. Stagnating incomes contributed to declining foot traffic at mall retailers.
Macerich itself has bought rivals over the years and still has substantial potential for growth, Silvers said. It recently acquired full ownership of the Fashion Outlets of Chicago and is going to develop the Fashion Outlets of San Francisco at the former site of Candlestick Park.
Macerich Chief Executive Arthur Coppola said in September that traffic at his malls slipped "maybe 1%" in the previous year. But during the same period, total sales rose 3.5% to 4%, he said.
"Maybe they had fewer trips, but they bought more when they came," Coppola said during an appearance on Bloomberg Television.
Indianapolis-based Simon Property is the nation's largest shopping center landlord, with Southern California holdings that include Brea Mall, Del Amo Fashion Center in Torrance and Ontario Mills outlet mall. Macerich, based in Santa Monica, owns regional malls such as the Westside Pavilion in Los Angeles.
Macerich, the third-largest mall owner by market value, issued a statement that its board was reviewing Simon's offer and urged its shareholders to take no action.
Simon Property said it is taking its offer to Macerich shareholders because Coppola didn't respond to overtures from Simon Chief Executive David Simon as promised. The two CEOs had met in December and February to discuss Simon's interest in Macerich.
"We have completed nearly $40 billion of acquisitions in a variety of complex transactions during our 21 years as a public company and we see no legal or other impediment to completing our purchase of Macerich," David Simon said in an open letter to Coppola.
The bid is valued at $22.4 billion with the assumption of $6.4 billion in debt.
Simon Property, which owns slightly more than 200 retail properties, also has agreed to sell selected Macerich assets to General Growth Properties Inc. if it succeeds in buying Macerich, David Simon said.
General Growth Properties of Chicago owns several malls, including Southern California's Glendale Galleria. Simon didn't reveal any details of the proposed side deal with General Growth Properties, which could help eliminate antitrust concerns as well as a potential rival bidder for Macerich.
Macerich's shares closed Monday at $92.76, up $6.04, or nearly 7%, indicating that investors expect a better offer. Simon Property's shares fell 14 cents to $180.44.
Macerich's 51 malls include properties in Chicago, New York and Washington, D.C. The malls have about 55 million square feet of leasable space.
"Macerich doesn't have to sell," said Silvers, the real estate analyst. "The company has a rock-solid balance sheet and can readily fund its growth."
Simon Properties — which is among his investment clients' holdings — "didn't get to be successful by overpaying," but its bid of $91 a share for Macerich may grow, Silvers said. "I am highly confident that Simon estimates Macerich's value at significantly more than $91."
Analyst Daniel Busch of Newport Beach real estate research firm Green Street Advisors agrees that a struggle for ownership of Macerich could be brewing.
"We expect that this offer is the first in what could be a protracted battle," Busch said. "Were Simon to be successful in its bid, the combined company would have a truly comprehensive, nationwide footprint in the mall space."
Santa Monica Place is one of Macerich's flagship properties. The company spent $265 million to rip the aging mall at Third Street and Broadway down to its steel foundations and rebuild it as a three-story outdoor shopping venue.
The move was intended to create an upscale center to serve the affluent Westside. The Macy's at Santa Monica Place was converted to a Bloomingdale's and Seattle retailer Nordstrom joined the mix when the mall reopened in 2010.
Macerich gave the Westside Pavilion at Pico and Westwood boulevards a $30-million upgrade in the mid-2000s that included the addition of the nation's biggest art-house theater complex at the time.