The Mills Corp. may finally be at the end of its troubles. The beleaguered real estate investment trust, which last week conceded that it was considering bankruptcy, agreed Wednesday to be acquired by Brookfield Asset Management for $7.5 billion, including debt and preferred stock.
Mills common stockholders will receive $21 per share, an 18 percent premium over Tuesday’s closing price of $17.77 a share. Shares rose 26.4 percent to close at $22.46 at end of trading on Wednesday.
Brookfield, a global asset manager with more than $50 billion in property in the U.S., will merge The Mills into a newly formed subsidiary and provide debt financing to the REIT until the merger is complete, assuming Mills’ remaining $1 billion senior term loan from Goldman Sachs. Brookfield, though the majority of its real estate portfolio is in high-quality office buildings, maintains a $1 billion portfolio of underperforming properties that includes retail real estate.
The deal comes just days after hedge fund Farallon Capital Management and Israeli real estate company Gazit-Globe Ltd., both major Mills shareholders, offered separate plans to infuse the REIT with cash. Farallon, which owns 11 percent of the stock, offered a $499 million recapitalization plan. Gazit-Globe, which owns 9.7 percent of the stock, proposed a $1.8 billion cash infusion to pay off the Goldman Sachs debt. This is the Israeli company’s third offer to Mills. Two earlier proposals in the fourth quarter of 2006 offered between $24.50 and $25.50 per share and gave Chaim Katzman, chairman of Gazit-Globe, a controlling position in the company.
The acquisition by Brookfield, however, might not mean the end of such proposals. “We cannot rule out the possibility that Gazit and other large holders could exert enough influence to force Brookfield to raise its offer,” wrote Ross Nussbaum, senior equity analyst for Bank of America. Still, “we don’t expect Farallon or Gazit to submit offers for the whole company.”
Mills announced last week that it was considering bankruptcy if it could not pay down its Goldman loan, which matures on March 31 of this year. The company has been courting bidders for nearly a year, but while other prominent retail REITs, including Simon Property Group and General Growth Properties, expressed interest in a one-off purchase of certain key properties, a wholesale acquisition of the company seemed unlikely. In the second half of 2006, the REIT shed many of its controversial, large-scale development projects — including the massive Meadowlands Xanadu in New Jersey and a major development stake in 108 N. State Street, better known as Block 37, in downtown Chicago — in order to make a purchase more attractive. The REIT’s cloudy financial situation (it hasn’t reported earnings in more than a year) has also dissuaded most investors from buying the company.
The merger was approved unanimously by Mills’ board and is subject to shareholder vote. The deal is expected to close in the second half of 2007.