2 other suitors vied for Rouse before its sale

Both saw process moving too quickly, proxy reveals

Seller held to mid-Aug. deadline

CEO could get $84 million in stock, statement shows

September 08, 2004|By Jamie Smith Hopkins and Andrea K. Walker | Jamie Smith Hopkins and Andrea K. Walker,SUN STAFF

In the frantic final days before the Rouse Co. agreed to be sold to a Chicago competitor, two other suitors complained repeatedly that the process was moving too quickly for them to make higher bids, according to a proxy statement Rouse released yesterday.

But neither felt they could put down a formal offer by Rouse's mid-August deadline - and Rouse didn't want to wait, concerned about giving up a bird in hand for two in the bush.

"If the board thought there could have been a better deal, they would have moved in that direction," Anthony W. Deering, Rouse's chief executive and chairman, said yesterday. "But they got the best deal possible for shareholders."

Rouse's proxy statement also showed that Deering stands to gain about $42 million in stock-based compensation that will vest as a result of the sale, plus another $42 million in stock and stock options that are already vested. Deering, who has been with Rouse for 32 years, would have received much of that compensation eventually, even without a sale.

Deering could also get $8 million in severance pay if his employment ends. His supplemental retirement benefits add up to $15 million.

Deering said yesterday that the stock-based gains need to be put in perspective: Rouse's stock was selling for as little as $18 a share when he was named chief executive in 1995. If stockowners approve the sale, they'll get $67.50 a share.

General Growth Properties Inc., a real estate investment trust that specializes in malls, agreed Aug. 19 to buy Rouse for $7.2 billion in cash and to assume $5.4 billion of existing debt.

A shareholders' vote is expected before the end of the year.

Though Rouse had been contemplating the possibility of selling itself for a year and a half, negotiations lasted just 43 days, according to the proxy. Prompted by the interest of a competitor it identified in documents as "Company A," it contacted General Growth and a third corporation - "Company B" - in early July.

Simon Property Group, the nation's largest retail REIT, has acknowledged that it was interested in buying Rouse but has said "the numbers weren't going to work." A spokesman declined to say yesterday whether Simon was Company A or Company B.

But neither company was happy about the pace of the sale, which one described as an "auction." Rouse is complex for a retail REIT because it not only owns malls, it develops master-planned communities and holds a portfolio of offices. Company B said it didn't have enough time to "get completely comfortable with the land business or how to appropriately value it."

`Day and night'

"We have worked day and night over the past several weeks to try to meet your schedule," Company B's chairman said in a letter Aug. 19, hours before the sale. "We told you at the beginning of the process that we were concerned about how short the evaluation period was."

Company B said it believed Rouse could be worth about $70 a share, according to the proxy. Company A said it might be able to offer between $65 and $70 a share.

But Rouse's board of directors notes in the proxy statement that only General Growth submitted a firm proposal.

"Although each of Company A and Company B had requested additional time to evaluate Rouse and to present its best proposal, our board considered that there were significant risks in extending the sale process, including that there was no assurance that Company A or Company B would ultimately present a proposal that was more favorable than GGP's proposal, that GGP could withdraw or reduce its proposal and that potential bidders might seek to bid jointly," the board wrote.

At least one shareholder believes directors could have done better. Florida resident David Jasinover filed a lawsuit against Rouse two weeks ago, alleging that the company is being sold at a price that is not a good value to shareholders.

`Richly rewarded'

Ryan Dobratz, an analyst with Morningstar, doesn't think the quickly concluded negotiations produced a bad deal. "I still feel that the Rouse shareholders were richly rewarded," he said.

Though negotiations didn't begin until July, the spark was in June.

According to the proxy statement, the chief executive of Company A suggested an acquisition to Deering over dinner at an industry conference. Deering didn't like the price range offered but decided to look for other possible bidders. He contacted General Growth and Company B on July 7.

For General Growth, success came in speed. By Aug. 12, Bernard Freibaum, that company's chief financial officer, told Rouse that he could submit a proposal as early as Aug. 16.

Company B countered that it couldn't make an offer until Aug. 23 at the earliest. And Company A didn't get back into the running until Aug. 18, when the chief executive told Deering that he had heard about the possible sale and was still interested.

It's not surprising that Company A believed there was still time. John C. Melaniphy III, executive vice president of Melaniphy & Associates Inc., a retail real estate consulting firm in Chicago, said retail deals "typically take much longer than anticipated at the forefront.

"REITs and investors are paying premiums for the Class A properties," Melaniphy added. "And with the market and the prices being so high, the only thing I could think is Rouse thought it would be an opportune time to sell."

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