Rouse to sell to competitor

Chicago firm will pay $7.2 billion, assume debt

Shareholders must approve proposal by General Growth

Civic leaders express disappointment

Sale Of The Rouse Co.

August 21, 2004|By Jamie Smith Hopkins | Jamie Smith Hopkins,SUN STAFF

The Rouse Co. of Columbia, which helped change the face of American development, agreed yesterday to sell itself to a Chicago mall operator in a deal valued at $12.6 billion.

The agreement promises an abrupt end to a distinguished corporate history begun 65 years ago by James W. Rouse, the visionary developer.

Rouse persuaded a nation to love malls, converted thousands of acres of raw Howard County farmland into the innovative city of Columbia, and helped revitalize urban cores across America, including Baltimore's Inner Harbor.

General Growth Properties Inc. was so impressed by the quality of the company's malls and other real estate holdings that it offered 25 percent more to Rouse shareholders than the stock's all-time high of $54 a share.

It has agreed to pay $7.2 billion in cash and assume $5.4 billion of existing debt, in a swiftly negotiated deal that must be approved by Rouse shareholders.

Analysts say it's a huge price and is great news for the company's investors. Rouse's stock soared more than 30 percent yesterday to $66.65 - nearly reaching the $67.50-a-share price promised by the buyer.

But the deal came as a shock and disappointment to local leaders, who are sure it will be a net loss for a metro area that has benefited from Rouse's image, innovation and philanthropy. Baltimore and its suburbs have seen a steady outward flow of headquarters as major companies have been acquired by larger corporations based elsewhere.

"I hate to lose them because it makes us more and more a branch-office town," said Aris Melissaratos, Maryland's secretary of business and economic development, who had no inkling that Rouse was for sale.

"And there's a price you pay for that in terms of civic leadership and the ability of the corporate world to support the community," he said.

The agreement does include a sweetener for the locals - $20 million to the Rouse Company Foundation, which funds nonprofit groups in the region. The amount will quadruple the foundation's size.

"The foundation will survive the company," Anthony W. Deering, Rouse's chief executive and chairman, said by telephone yesterday. "I think it is a unique recognition of a unique company, and I'm sure Jim Rouse would have a smile on his face."

Rouse, the third-largest real estate investment trust specializing in regional malls, decided to put itself on the market in the past year because the price of buying malls to keep growing was spiraling out of its reach, Deering said.

"We were struggling to be buyers," he said, so the board of directors concluded: "Maybe we should be sellers - and maybe we should look at selling the company."

Simon Property Group, the largest trust specializing in big malls, was interested in buying but couldn't make the numbers work, a Simon spokeswoman said yesterday.

That left General Growth, the second-largest mall trust and a company with a market capitalization roughly equal to Rouse's. The Chicago company said Rouse approached it in June for what became a whirlwind courtship.

`Impressive portfolio'

Serious conversations started at the end of last month, Deering said, and at 4:30 p.m. Thursday, the Rouse board convened in New York to consider the deal.

The Rouse directors signed a contract at 2 a.m. yesterday.

"I don't think there's an owner/operator in our business who hasn't always desired to own those assets," John Bucksbaum, General Growth's chief executive, said in an interview yesterday.

"They've created a very impressive portfolio of malls," he said. "They've distinguished themselves as one of the finest - if not the best - master planners in community development in this country today."

Just how much of Rouse will remain a part of General Growth is an open question.

Rouse has a treasure trove of high-end malls from Boston's Faneuil Hall Marketplace to Las Vegas' Fashion Show, which analysts say will greatly improve the quality of the buyer's mall portfolio. But Rouse also owns office buildings and is developing large planned communities, mostly in the Southwest - neither of which fit General Growth's focus.

Bucksbaum said he "wouldn't rule out" any options when considering the planned communities.

The company could raise money by selling part or even all of its community development projects, General Growth's chief financial officer, Bernard Freibaum, said in a conference call with analysts.

Rouse employs more than 3,100 people, including about 500 at its Columbia headquarters. The heads of both corporations said it is too early to say what will happen to them. But analysts expect deep cuts at the Rouse headquarters because General Growth operates in a much more decentralized manner than the company it is acquiring.

Deering said that the deal is legally a merger but that he expects the resulting corporation to keep the General Growth name, its chief executive and its Chicago headquarters.

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