LONDON-Simon Property Group, based in Indianapolis, has hinted that it may bid to buy the locally-based Capital Shopping Group, valued at about $9 billion. However, many retail experts and analysts say that while the UK mall bid may represent the US-based retail giant’s best bet to grow in the next decade, the REIT doesn’t have the ability to raise the needed funds before the cost would rocket to more than $11 billion.
Last week, CSC, formerly known as Liberty International, announced that it would buy the 1.9-million-square-foot Trafford Centre near Manchester for about $2.5 billion, including the assumption of $1.2 billion of debt. Owner the Peel Group would sell the property to CSC, with the owner providing some of the funds in order to buy enough shares to acquire a roughly 19.9% stake in the company, and join CSC’s board.
The day after the announcement, Simon, a 5.6% owner in CSC, sent the local company a letter saying that it “had the opportunity to present CSC with a potential cash offer for the company at an unspecified premium,” according to a CSC statement. However, the vagueness of the letter encouraged CSC to continue on with the Trafford purchase, and the firm will hold a Dec. 20 shareholder meeting to approve the buy.
Since then, there has been much speculation about Simon acquiring CSC, causing both company’s stock to rise. Simon showed it has the tenacity after spending the year in a frustrating but failed takeover attempt of Chicago-based General Growth Properties. However, experts say it’s unlikely Simon can come up with an acquisition plan in the next 20 days, and after the Trafford purchase the company would be worth even more. As of June, CSC owned 13 regional shopping centers totaling about 14 million square feet, all in the UK. A Simon spokesman could not be reached for comment.
David Harris, an analyst with Gleacher & Co., said Simon’s aborted GGP buy and regulatory reviews highlight the difficulties of finding external growth for SPG as a $50-billion-plus company. “We think overseas expansion of the company over the longer-term is likely…and now is an attractive time for SPG to consider increasing its investment in the UK, at the right price,” Harris said in a statement Tuesday. “Domestically, its options to make material acquisitions appear limited. As of September, SPG had $1.3 billion of cash on hand and $3 billion of untapped credit availability. A cash bid for CSC would require SPG to raise an additional $4.5 billion to $6.5 billion. Given current pricing and the sums involved, we are presently inclined to think that SPG would be unlikely to bid for CSC.”
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