UPDATE 2-Canada's KingSett leads C$2.6 bln bid for Primaris REIT
* Unsolicited bid offers 12.8 pct premium to Tuesday's close
* Move comes as U.S. retailers look to expand in Canada
* Primaris' shares surge in early trading on the TSX
(Adds details from interview, share price move, details, byline)
TORONTO, Dec 5 (Reuters) - A consortium led by Canada's KingSett Capital will offer about C$2.6 billion ($2.62 billion) to acquire Primaris Retail REIT to bolster its portfolio of Canadian shopping malls at a time when U.S. retailers are looking to expand northward.
The unsolicited offer, announced by the real estate focused private equity fund on Wednesday, would give it control of mid-market retail centers in major cities across Canada and dominant shopping malls in secondary cities.
The cash offer of C$26 per unit represents a premium of about 12.8 percent to Primaris Real Estate Investment Trust's Tuesday closing price of C$23.04 on the Toronto Stock Exchange. Including the assumption of debt, the transaction is valued at C$4.4 billion.
The proposed deal is also supported by a C$1.1 billion side agreement with Canada's largest REIT, RioCan Real Estate Investment Trust, which has agreed to purchase some of the Primaris assets after the close of the proposed transaction.
KingSett said its consortium consists of the Ontario Pension Board, as well as some of KingSett's investment funds. The firm said partners in its funds like Alberta Investment Management Corp, Ivanhoé Cambridge, and a number of other leading Canadian institutional real estate investors also support the deal.
The offer comes as U.S. retailers, looking to expand into Canada, vie for prime real estate assets. Last year, Target Corp , the second-largest U.S. discounter, agreed to take over Canadian leases for Zellers stores owned by Hudson's Bay Co in a deal worth some C$1.8 billion.
RioCan last year signed a C$1 billion joint venture to develop outlet malls in Canada with U.S.-based Tanger Factory Outlet Centers.
"This is a strong and compelling offer, providing unitholders with a premium price at a time of peak valuations in the sector," said Jon Love, KingSett's managing partner.
Love said he met with Primaris CEO John Morrison on Tuesday night and informed him of KingSett's plan to make an offer to unitholders of Primaris. Love declined to provide any details of Morrison's response to the offer, but described the meeting as "very courteous."
"This is a very large transaction and there were a number of parties at the table and going directly to unitholders was simply the most effective and practical way forward," Love said.
Primaris was not immediately reachable for a comment.
"The all-cash offer provides Primaris' unitholders with an attractive opportunity to obtain immediate liquidity in the face of economic uncertainty and volatile markets," Love said.
Primaris units, which previously touched an all-time high of C$24.93 in August on the Toronto Stock Exchange, surged about 15 percent to C$26.50 in early trading on the TSX, indicating that investors were expecting a sweetened offer or rival bid to emerge.
Volumes in the typically thinly traded units surged more than 40 times above average levels and Primaris was the most actively traded name on the TSX on Wednesday with units trading C$3.16 higher at C$26.20 at 10:20 a.m. EST.
The REIT, formed in 2003, owns more than 30 properties in cities across Canada, including the Dufferin Mall in Toronto, the Cornwall Centre in Regina, Saskatchewan, and the Tecumseh Mall in Windsor, Ontario.
Its tenant list includes such names as Hudson's Bay, Canadian Tire Corp, Reitmans, Sears Canada, Target, Shoppers Drug Mart Corp and others.
KingSett said it had secured the financing required to close the proposed transaction and to provide for any post-closing refinancing and liquidity requirements.
The firm said full details of the offer will be included in a formal offer and take-over bid circular, which will be filed with Canadian securities regulators in the coming days and mailed to Primaris unitholders. The offer needs to be approved by at least two-thirds of the unitholders.
KingSett and its affiliates own 6,880,000 units of Primaris, representing about 7 percent of Primaris' currently issued and outstanding units, making them one of the largest unitholders in the company.
($1 = 0.9927 Canadian dollars)
(Reporting by Euan Rocha; Editing by Frank McGurty and Maureen Bavdek)