Mills Corp. is sold to Canadian firm

Ailing parent of Arundel Mills agrees to $7.5 billion

January 18, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Financially strapped Mills Corp., the Chevy Chase mall developer that owns Arundel Mills and Marley Station, agreed yesterday to be bought by a Canadian investment company in a deal valued at $7.5 billion.

Mills said the purchase would help address the company's mounting debt and accounting irregularities that nearly landed it in bankruptcy.

Under the deal, Brookfield Asset Management Inc. of Toronto will pay $21 a share, or $1.35 billion, for all of Mills' shares. The $7.5 billion deal includes debt and preferred stock.

Mills, a leader in developing malls with various entertainment venues, has been searching for a buyer for months.

It has said its financial problems would make it difficult to pay its bills beyond March 31.

The company, which owns 38 properties said last week that an internal review uncovered extensive accounting errors in its earnings. Two major shareholders this week offered financing proposals to help Mills ease its debt load and avoid a sale.

The deal marks Brookfield's first venture into the U.S. mall industry, and some analysts said it would have the money to better invest in Mills' large group of retail properties.

Brookfield owns three retail malls in Brazil and also has retail properties in some of its office buildings. The investment firm has about $50 billion in assets under management, including commercial real estate holdings in London and New York.

A spokeswoman for Brookfield said the company saw value in Mills' malls, despite the company's financial problems.

"The assets in the portfolio are companies that are very well-established, stable, value-oriented malls," said Katharyne C. Vyse, Brookfield's senior vice president of investor relations and communications. "We think that provides us with a significant opportunity to enhance the profitability of the company."

Vyse said it was too early to say whether Brookfield would sell some of the malls and whether or not the company headquarters would remain in Maryland. Analysts said the company would look to institutional investors to help finance the acquisition.

Mills' executives did not return calls yesterday.

"We believe we have achieved an outcome that is the best possible result for all involved," said Mark S. Ordan, Mills' chief executive and president, in a statement.

Mills stock rose $4.69, or 26.39 percent, to close at $22.46. In the past 52 weeks, the stock has ranged from $12.07 to $44.50.

Analysts agreed that Mills properties are attractive despite wider problems at the company.

"The Mills has some of the top regional malls in the United States," said Rossa O'Reilly, managing director at CIBC World Markets in Toronto. "Anybody looking to own property in that asset class would be very interested in Mills."

One real estate adviser said that Brookfield has the cash Mills lacked to reinvest in many of its properties.

"The Mills [Corp.] ... put a lot of expansions on hold," said Gary Ragusa, senior vice president of the Greenberg Group, a real estate adviser company. "I think they have the potential to improve a lot of these assets. I don't think they'll just cut up the assets and sell them."

Along with the debt and financial reporting problems, Mills also faces an investigation by the Securities and Exchange Commission.

Mills has replaced most of its executives and sold $981 million in properties to make itself more attractive to a buyer. It also sold its stake in Meadowlands Xanadu, an ambitious 104-acre mall and entertainment complex in New Jersey.

The mall developer warned in an SEC filing last Thursday that it could be forced into bankruptcy if it was unable to sell all or part of the company.

Mills needed to raise cash to pay off $1 billion on a loan from Goldman Sachs Mortgage Co. due March 31. Mills took out a $1.5 billion loan to help the company stay afloat.

Brookfield has agreed to finance the debt and assume the remaining portion of the Goldman Sachs loan, Mills said. It will revise the terms of the loan and supply a $500 million line of credit.

Mills is in the process of restating earnings from 2001 to 2004 and for the first three quarters of last year. Results of an internal investigation released by Mills this month found numerous accounting problems at the company, including some it blamed on wrongdoing by company officials.

Mill, which will become a subsidiary of Brookfield, will restate its earnings before the deal is completed.

Prior to the Brookfield deal, two major shareholders had offered to invest money in the company to prevent its being sold at a depressed price.

The hedge fund Farallon Capital Management LLC, which owns 11 percent of Mills shares, this week proposed pumping $499 million into the company to "move from a triage mode into a recovery mode," according to an SEC filing.

A public relations firm representing Farallon said yesterday the company had no comment.

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