Simon Agrees to Buy Chelsea Property Group

Mall owner Simon Property Group Inc. said Monday that it had agreed to buy Chelsea Property Group Inc. for $3.5 billion, boosting its outlet shopping center business and giving it a presence in Asia.

The acquisition highlights a mall property market where prices are too hot to touch, so buyers like Indianapolis-based Simon, the largest U.S. shopping mall owner, have turned to outlet centers as a way to grow, executives and analysts said.

“This is a very profitable business and a business we have grown very comfortable with over the years,” Simon Chief Executive David Simon said.

Friedman Billings Ramsey analyst Paul Morgan said the deal “takes the dominant mall owner and the dominant factory outlet owner and puts them together.

“It also takes a U.S. company that’s got a growing platform in Europe with a U.S. company that’s got a growing platform in Asia,” Morgan added. “From both perspectives, I think it’s a good combination and the price is a fair one.”

Simon said it would pay $66 for each Chelsea share and operating partnership unit in a mix of cash and securities, a premium of 13% over Chelsea’s closing stock price Friday of $58.24 on the New York Stock Exchange.

For each Chelsea share, Chelsea shareholders will receive $36 in cash, $15 of Simon common stock -- based on a fixed conversion ratio of 0.2936 per Chelsea common share -- and $15 of a new issue of Simon convertible preferred stock.

Simon, which failed last year in a bid to take over rival Taubman Centers Inc., would assume about $1.3 billion of Chelsea debt and preferred stock. Including debt and transaction costs, the purchase price is about $4.85 billion.

Chelsea, a real estate investment trust, or REIT, based in Roseland, N.J., has a property portfolio that includes 35 premium outlet centers -- 31 in the United States, including Los Angeles, and four in Japan.

Simon and Chelsea said they could share their expertise in developing properties abroad. Chelsea, active in Asia, is building an outlet mall in Japan. Simon has malls in Europe.

They also said the combination would let them share more access to each other’s retailers, such as outlet staple Liz Claiborne, which may be looking for full-priced mall space as it is squeezed out of department stores offering their own brands.

Shares of Chelsea jumped $7.01, or 12%, to $65.25, while Simon’s stock fell 32 cents, or 0.6%, to $51.98, also on the NYSE.