Even though Simon Property Group has withdrawn its $16.8 billion bid, that doesn’t mean the targeted Macerich Company is off the hook.

This story first appeared in the April 2, 2015 issue of WWD. Subscribe Today.

Investors will carefully watch for movement in Macerich’s stock, which on Wednesday fell 6.6 percent, or $5.60, to $78.73, after Simon’s last offer was rebuffed by the Macerich board. It’s an indication Wall Street isn’t happy about the outcome. Simon Property Group’s stock rose $2.35, or 1.2 percent, to $197.99.

Now Macerich must move deliberately to push up the stock price by increasing productivity at its properties and shedding those with little life, all to prove that rejecting Simon was the right decision for shareholders. “We realize that Macerich currently faces a disconnect between private market valuations and public market views — a situation we have seen before. Letting that disconnect persist is not an option, and we intend to act decisively to correct the situation,” Arthur Coppola, chairman and chief executive officer of Macerich, said late Tuesday night, just after the firm’s board unanimously rejected Simon’s takeover offer.

Coppola cited a “rigorous” business plan put forward last November, involving “recycling” out of lower growth assets; redeploying capital into highly productive assets; expansion and redevelopment projects under way, and identifying additional opportunities. Macerich has a goal of increasing operating margins by 4 percent over the next 18 to 24 months through property expense reductions, common area enhancements geared to boost revenues and expanding its outlet business.

“It’s pretty clear [Macerich] needs to prove they are as valuable as they think they are,” said a financial source who works with Simon.

But what’s next for Simon? Chairman and ceo David Simon and his team could make a hostile run at Macerich down the road, particularly if Macerich’s stock continues to slide. The share price is still above the seven-year high of $77.08 reached last November when Simon disclosed a 3.6 percent stake, causing Macerich’s shares to jump 10 percent from trading in the mid $60 range.

“Simon sits back and waits for Macerich stock to go down,” said another senior-level real estate executive, discussing Simon’s potential next move. “A future deal could get done.”

“Is Simon going away? Probably not,” said one retail expert who knows Simon. “But they have to look at different ways how to grow their business — outlets, online, moving up their rents. No one is really building malls anymore. And REITs are complicated to take over,” due to whatever poison pills and staggered boards they could have in place, and government antitrust concerns. There’s extensive due diligence required before launching a bid, on antitrust, geographic fits and future opportunities for a combined company. In addition, the retail source noted, “Most managers don’t want to give up all their perks. They’ve got their own planes.”

Beyond a straight acquisition, “Simon looks at different permutations, other forms of growing the business — more strategic partnerships rather than always competing, more international projects, and urban settings that have generally not been facilitated by traditional developers,” said one retail ceo.

At this stage, Simon wouldn’t want to appear overly eager to acquire something and pursuing a REIT, such as General Growth Properties, the nation’s second-largest developer, would create problems for the government to resolve.

Simon, a former banker who took over the reins of the family business in 1995, has aggressively put his real estate company on the acquisition trail. In 1996, the company merged with former rival DeBartolo Realty Corp., and has since purchased Premium Outlets, The Mills and a 28.9 percent ownership interest in Klépierre, which has shopping centers in 13 European countries. Last January, Simon completed the acquisition of Jersey Gardens in Elizabeth, N.J., which was renamed The Mills at Jersey Gardens, and University Park Village in Fort Worth, Tex. Two months ago, Simon formed a joint venture with Hudson’s Bay Co. for property acquisitions and to strengthen owned properties.

Still, Simon’s overtures haven’t always been met with open arms. A yearlong, hostile $1.68 billion bid for Taubman Centers was thwarted in 2003 after the governor of Michigan, where Taubman is based, signed a law to protect REITs from unwelcome offers. Starting in 2009, Simon made several bids for the-then bankrupt GGP, but threw in the towel when an investor came in with a recapitalization plan.

“Their eyes are always open for expansion through acquisition,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon. “Simon is looking for higher profitability, more efficiencies and economies of scale. The fastest, most profitable growth path is through the acquisition of healthy competitors. There is not much room left for new shopping center construction.”

At the Indianapolis-based Simon, the largest shopping center developer and operator in the country, sales per square foot rose to $619 last year, versus $582 in 2013. The occupancy rate rose to 97.1 percent from 96.1 percent. Among its biggest and most famous malls are Roosevelt Field, The Forum Shops at Caesars, Aventura Mall, Sawgrass Mills, Woodbury Common Premium Outlets, King of Prussia and Town Center at Boca Raton. Simon has $1.8 billion in redevelopment and expansion projects currently underway at 27 properties. There is also a joint venture with McArthurGlen to own and develop designer outlets, primarily in Europe, where there are opportunities for expansions of existing assets and potential new development.

Macerich, the nation’s third-largest mall developer and operator, reported $587 in sales per square foot in 2014 versus $562 the year before. The occupancy rate was 94.4 percent last year, compared to 94.6 percent in 2013. Among Macerich’s best malls are Queens Center, Tysons Corner Center, Biltmore Fashion Park and Santa Monica Place. Macerich, based in Santa Monica, Calif., has $600 million in development projects in the works.

“Both companies are making big investments in their centers, involving new technologies for omnichannel initiatives, restaurants, evolving common areas, rotating kiosks, and creating new kinds of experiences and events,” said one consultant to major real estate firms. “Both companies are doing all the right things to make things productive, in some cases even investing in mixed use and lifestyle projects. They are both very much focused on creating a better experience for the shopper and making the mall more than just a place to shop a couple of times a month. There’s also always opportunity for pruning and they can grow their outlets businesses.”

Late Tuesday, Macerich said its board unanimously rejected Simon’s revised, unsolicited proposal to acquire the company for $95.50 a share in cash and stock, after reviewing it with the assistance of its financial, real estate and legal advisers. Macerich said the proposal “substantially undervalued” the firm.

“Our board carefully reviewed Simon Property Group’s revised proposal and concluded that it does not reflect the full value of our company,” Coppola said.

“Simon’s proposal has shined a bright light on the value of Macerich,” Coppola added, despite the stock price drop on Wednesday.

Fred Hubbell, lead independent director of Macerich, added, “Our board — including in separate sessions of the independent directors — spent extensive time carefully evaluating the revised proposal and our stand-alone plan with management, Eastdil Secured and our financial and legal advisers. The board, which includes real estate experts and a representative of one of our largest stockholders, concluded that now is not the right time to sell the company. We remain committed to continuing to grow stockholder value. We recognize it is incumbent upon us to have the public market understand the value of our business and properly reflect it in our share price. I intend, together with management and other directors, to engage directly with stockholders over the coming weeks and months.”

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