Hedge Fund Offers to Increase
Its Stake in Ailing REIT Mills

Hedge fund Farallon Partners proposed Tuesday to buy $499 million of Mills Corp. stock from the company, helping allay shareholder concerns about the ailing real-estate investment trust and sending shares sharply higher.

The move follows Mills's indication last week in a filing that it may be forced to file for bankruptcy protection if it wasn't able to sell or recapitalize the company by March 31. Mills said that it had a March 31 deadline -- recently extended -- to pay a $1.06 billion senior-term loan to Goldman Sachs Group Inc.

The $20-a-share offer from Farallon -- already Mills's biggest shareholder with a 10.9% stake -- would give the hedge fund more than one-third of the company's stock. The offer expires Friday and comes at a 31% premium to Mills' closing price last Friday of $15.21 a share. Mills had 56.6 million shares outstanding as of Nov. 4.

Shares of Mills were recently trading up $2.12, or 14%, at $17.33, with around 1.28 million shares traded -- slightly above average daily volume.

Mills last week also said that it completed a lengthy investigation into accounting irregularities, which resulted in its cutting its shareholder equity by up to $352 million as of Sept. 30, 2005. The REIT has cut shareholder equity by $2.5 billion the past 15 months as its accounting trouble emerged.

Among other items, Mills' woes resulted in the company taking an impairment charge of between $635 million and $655 million related to the company's Meadowlands Xanadu project in New Jersey. Mills last year agreed to pay Colony Capital and Kan Am USA Management XXII LP to get out of the shopping mall project, located five miles from New York City. Construction had been costing Mills millions of dollars a month, with scant hope of return.

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