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SAN FRANCISCO-The Mills Corp. said Tuesday in an SEC filing that locally headquartered hedge fund manager operator Farallon Capital Management has offered to recapitalize the company by acquiring $499 million of newly issued shares at an average price of $20 per share. Shares of Mills Corp. jumped 17% on the news.
Mills last week said in an SEC filing it might have to seek bankruptcy protection because it faces a March 31 deadline to repay a $1.1-billion loan from Goldman Sachs. Previously, Mills said it would have to restate financial statements for 2001 through 2004 and for the first three quarters of 2005. The company has since replaced most of its top management.
A recapitalization would instantly lower Mills' debt burden and, therefore, its risk profile, allowing it to work on improving operations, according to Farallon, which currently owns a 10.9% stake in Mills. Farallon Capital set a Friday deadline for Mills to accept the investment offer.
Also filed with the SEC today was a best-and-final recapitalization offer by Gazit-Globe, an Israel-based real estate investment company and Mills' second-largest shareholder. Revising its October proposal, the company offered to invest up to $1.1 billion to recapitalize Mills.
"In our view, Mills must immediately address the 'gun to its head' evidenced by the Goldman Sachs loan," says the letter from Gazit-Globe. "This 'ticking time bomb' has prevented Mills from focusing on its business plan and…raises the specter of bankruptcy and the loss of the stockholders' investment in the company. We believe Mills has significant upside potential [that] cannot be achieved unless Mills' near-term financial situation is addressed."
Gazit-Globe's proposal calls for $500 million to be contributed immediately through a Private Investment in Public Equity (PIPE) transaction. It would commit to contributing the $600-million balance through a rights offering in which all of Mills' stockholders may participate and that it agrees to fully "backstop" as a standby purchaser to ensure that Mills achieves the desired capital infusion.
In exchange for that, Gazit-Globe would invest $500 million in Mills' publicly traded common stock. The initial $250 million would be priced at $23.50 per share. The balance of $250 million would be priced at $18.50. The structure equates to an average price of $21.00 per share for the entire $500-million PIPE transaction in the event it provides 100% of the capital. The offer represents a premium of approximately 38% over the closing price of $15.21 on Jan. 12.
The deal would entitle Gazit-Globe to appoint a majority of seats on the Mills' board, which is proposes be reduced in size to nine members. The appointees would not be Gazit directors, officers, or employees, according to Gazit-Globe.
Farallon's proposal calls for Mills to use the $499 million it would take in to repay debt and to pay Farallon investors a commitment fee equal to 4% of the investment. With regard to the debt repayment, Mills would be required to "use its best efforts to pursue CMBS financing and/or other permanent debt to refinance," according to Farallon's summary of its proposal. Farallon's proposal also requires the board to be reduced to 11 members "acceptable" to Farallon, including two members chosen solely by Farallon.
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