US-based Simon Property Group (SPG), which owns 5% of Capital Shopping Centres (CSC), has invited CSC to explore an alternative financing proposal for the acquisition of the Trafford Centre.

Meanwhile, Dow Jones Newswires reports that CSC has rejected the proposal. In rejecting Simon's offer, CSC said that it still favours a deal it has on the table to buy the Trafford Centre from Peel Holdings Ltd. for GBP747.6 million ($1.18 billion) of CSC stock, amounting to a 25% stake, Dow Jones reported.

CSC last month announced its plans to acquire The Trafford Centre, located near Manchester, and one of the UK's most successful retail and leisure destinations attracting 35 million customer visits annually.

Simon said in a letter to CSC's Board that it considers this proposal to be more attractive for CSC shareholders than the transaction which the Board of CSC has recommended that shareholders support at the EGM currently scheduled for 20 December.

Simon said it would be prepared to subscribe, subject to a clawback, for fully diluted issue of 205.5 million new ordinary shares at a price of 400p per share, representing a 9.0% premium to Peel's blended share price of 367p per share, as well as a 6.1% premium to NAV.

The issue would comprise 153.3 million new ordinary shares, together with GBP 209 million of convertible bonds (the same amount as would be issued to Peel), convertible into 52.2 million ordinary shares, for which we would be prepared to accept the same coupon as Peel despite the higher conversion price of 400p.

In terms of the current proposal for Trafford Centre, CSC proposes to issue up to 224.1 million new ordinary shares on a fully diluted basis, 20.9 million of which will be issued at 355p per share, and 203.2 million shares issued at 368p per share, or a blended share price of 367p. This represents a 2.7% discount to NAV per share of 377p.

"We recognise that Trafford Centre may be a strategically important asset, although we continue to have concerns regarding the agreed purchase price. To a greater extent, we are concerned that the funding of the transaction in shares, on the agreed terms, results in CSC - and by extension its shareholders - overpaying for the Trafford Centre. We have been speaking to other shareholder in CSC, who have expressed similar concerns," Simon added.

"As we have said on more than one occasion, CSC is contemplating transferring significant control to Peel, while failing to extract a premium for it, and is issuing securities to Peel at a discount to CSC's latest stated NAV. If you insist upon proceeding with the Trafford Centre acquisition, the only feasible solution to address our funding concern is to issue the securities that are effectively financing the transaction at a higher price. This would avoid the reduction in the company's net asset value and the destruction of shareholder value - indeed at the right price, shareholder value would be enhanced," it added.

"Our proposal entails a cash placing to Simon at a price that reflects a substantial premium to the terms of the existing Peel transaction and is much less dilutive to existing shareholders. This placing would be subject to a partial clawback of up to 50% in favor of other existing CSC shareholders, so that they can share in the transaction and reduce our holdings if they wish," the group added.

"Our minimum resulting shareholding, on a fully diluted basis and assuming full clawback, would be 18.4%, inclusive of our current shareholdings. The cash proceeds of the issue would be payable to Peel, meaning that Peel would receive the cash equivalent of the agreed value without a discount," it added.

"Given that this new proposal solves a significant concern that has been expressed about the Trafford Centre acquisition in its current form, we firmly believe you should recommend it to your shareholders. If CSC is to proceed with the Trafford Centre acquisition, financing that transaction on clearly better terms has to be in the company's and its shareholders' best interests. We would be more than happy to engage with you immediately on this and/or our earlier proposal, which remains on the table," SPG concluded.

Source: I-Net Bridge