Simon in $3.5bn deal for Chelsea (US)

Simon Property, the Indiana-based mall owner, yesterday agreed to a $3.5bn acquisition to expand in the US outlet shopping centre market and gain a foothold in Asia.

Simon, which was involved in one of the most acrimonious takeover battles in the history of the US real estate industry last year, this time clinched a friendly deal to buy New Jersey-based Chelsea Property Group for a mix of cash and stock equivalent to $66 per share.

The deal will propel Simon into a leading position in the high-end outlet shopping centre market in the US, which is widely seen as more attractive than the struggling traditional mall operations. 'This is a very profitable business and a business that we have grown very comfortable with in the past few years,' said David Simon, Simon´s chief executive.

Chelsea manages 31 outlets in big US cities such as New York and Los Angeles, and important tourist destinations such as Orlando and Las Vegas. The company also owns four outlet centres in Japanese cities including Tokyo and Osaka and is contemplating a move into China.

In October, Simon dropped a $1.7bn hostile takeover bid for Taubman Centers, a Midwestern rival, after an acrimonious 11-month stand-off that mobilised a host of lawyers and politicians. In the end, Simon was forced to drop its offer, made jointly with Westfield America, after Michigan´s governor signed a bill reversing a court ruling that prevented the Taubman family from using a special class of voting shares to fend off the bid.

Simon is paying Chelsea shareholders a 13 per cent premium over the target´s closing share price on Friday. On Monday, Chelsea´s shares moved up 11 per cent to $64.74 in morning trading. Simon shares fell 2 per cent to $51.18.

Simon is expecting the acquisition to enhance 'funds from operations' by at least $0.09 per share next year and $0.18 per share in 2006. The transaction, which has a break-up fee of $110m and includes the assumption of $1.3bn of Chelsea debt, is expected to close in October.

UBS and Morgan Stanley advised Simon. Merrill Lynch advised Chelsea.

Source: Financial Times

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