Simon Sets Rival Offer for Mills
In Move to Undo Brookfield Pact

Simon Property Group Inc. and hedge fund Farallon Capital Management yesterday lobbed in a roughly $1.56 billion offer for Mills Corp., a move designed to derail a $1.35 billion agreement with Brookfield Asset Management.

Investors had for weeks been expecting a higher offer for Mills, a real-estate investment trust with dozens of shopping malls around the country. As Mills's largest shareholder, Farallon has aggressively pushed for a higher offer for the Chevy Chase, Md.-based company.

The emergence of Simon, the country's largest REIT by market value, gives Farallon's efforts some important momentum. The two are expected to put up equal amounts of equity to help fund their bid, creating a per-share price of $24, greater than the $21-per-share deal struck by Brookfield, based in Canada, last month. Mills also has an additional $6 billion-plus in debt and preferred stock that the two partners would assume.

The offer puts into relief two of the emerging deal-making themes of 2007: Hedge funds are getting increasingly comfortable assuming controlling ownership stakes and are finding willing allies among corporate stalwarts such as Simon. The new year has also brought a spate of "jumped" transactions, in which bidders have shown little fear about busting up an agreed-upon deal. Robust financing markets have made such maneuvers possible, and bankers on Wall Street expect still more unsolicited activity in the months ahead.

Simon's move also highlights the seemingly relentless rise of commercial real-estate, even while residential property values continue to suffer. Simon already is the country's largest mall developer, with interests in 285 properties throughout the U.S. The Indianapolis-based firm had developed five properties with Mills during the 1990s, and is in a "better position to enhance its assets" than other owners, a person close to Simon said yesterday.

To help push its efforts, Simon and Farallon are structuring their proposal as a cash tender offer, which would allow Mills shareholders to get their cash within a matter of weeks, this person said. That could be as much as six months earlier than Brookfield's plan. The team has also lined up support of another large shareholder, Stark Master Fund Ltd., which has given the duo an option to acquire its 2.8 million Mills shares.

To succeed, Farallon and Simon must first win support of Mills's board, which needs to find their proposal a "superior competing transaction" to begin negotiations. That would, in essence, kick off a new auction for Mills just weeks after a months-long auction appeared to conclude.

Brookfield, which owns a controlling stake in office-building owner Brookfield Properties Corp., focuses on long-term, income-producing investments such as hydropower, timber and commercial real estate, and has more than $50 billion in assets under management. But most of its commercial-real-estate holdings are in office buildings, not retail. That raised questions among some analysts.

The earlier Brookfield agreement appeared to end a 15-month drama for Mills, which ran into ill-fated developments and accounting woes that may have been a result of misconduct, according to the company. On Friday, Mills shares closed up 17 cents to $22.15 each, a price that is still 44% below the company's value of a year ago, and 8% lower than its market capitalization of 1997.

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