Mills to Be Acquired by Simon and Farallon for $25.25 a Share

Mall operator Simon Property Group and hedge fund Farallon Capital Management said Friday they will buy the struggling mall developer The Mills Corp. for $1.64 billion after outbidding rival Brookfield Asset Management .

Mills has 38 malls nationwide, many of them massive regional shopping centers like Potomac Mills in Virginia, Arundel Mills near Annapolis, Md. and Sawgrass Mills in Florida. But it has struggled in recent years after a decade of rapid growth.

Simon and Farallon offered $25.25 per share in cash for Mills, higher than the $1.56 billion, or $24 per share, tender the partnership made earlier this month.

Mills said Friday it has terminated a previous $1.35 billion, $21 per share agreement it reached in January with Brookfield, a Canadian conglomerate.

Mills said Tuesday that it favored the higher Simon-Farallon proposal, but gave Brookfield three days come up with a better deal.

A spokeswoman for the Toronto-based Brookfield did not immediately return a phone message seeking comment.

Many Wall Street analysts believed Indianapolis-based Simon, the nation's largest mall operator, was a better fit for Mills than Brookfield, which owns timber, power and commercial real estate but has no retail presence in North America.

"The Mills properties are an excellent strategic fit with our existing retail assets," said David Simon, chief executive of Simon.

The companies said the value of the deal would be $1.64 billion--or $7.9 billion including debt and preferred stock. The tender offer for Mills stock was expected to begin before the end of February and close after 45 days.

Mills said its board of directors unanimously approved the deal with Simon and Farallon.

Funds managed by Farallon currently own more than 10.8% of the outstanding common shares of Mills. Simon Property has also obtained an option to acquire approximately 4.9% of Mills' shares from Stark Master Fund.

Despite its attractive mall properties, Mills has run into problems recently. Major projects like the $2 billion Meadowlands Xanadu mall in northern New Jersey foundered and the Securities and Exchange Commission is investigating widespread accounting problems.

Mills said last month those errors could cut up to $352 million from shareholder equity, and the company plans to restate earnings as far back as 2001. Mills stock has been battered by the news, falling form a high of about $60 per share in mid-2005 to as low as $15 in January when it warned it might face bankruptcy if a buyer wasn't found soon.