Shares of The Macerich Company were over up 5% in recent trading after The Wall Street Journal reported Simon Property Group has made multiple overtures about a potential merger. No official offer has been made and Macerich is domiciled in Maryland which has antitakeover provisions. But Simon revealed a 3.6% stake in its smaller rival in November which many viewed as the first step toward a bid.
A Simon-Macerich merger, should it come to fruition, would combine the nation's largest and third-largest mall operators and continue the industry consolidation that's occurred since the bursting of the credit/real estate bubble in 2008. In 2009, General Growth Properties filed for Chapter 11 bankruptcy protection and many observers have declared the "death of the mall" as more consumers go online and one-time anchor tenants like Sears and JCPenny retrench.
"This deal all about leverage," says veteran retail analyst Howard Davidowitz. "The name of the game is to get as much leverage as you can [with tenants]. Not only to increase rents in the good centers but also force people not to get out of the medium ones."
Macerich would be wise to sell to Simon if the price is right. "It's a good time to get out," he says. "The shopping center business in general is not a great place to be -- not with the growth online and move toward urbanization, the downsizing of the size of stores. And there's no growth in the department store business and you can't have a mall" without those so-called anchor tenants.
Davidowitz, who has been very bearish on malls and retail generally, has no positions in either Simon or Macerich.
But not all malls are created equal and Simon Property is widely viewed as one of the best, if not the best, operator in the country. In pursuing Macerich, if the reports are true, Simon would be making a bet on both geographic expansion -- Macerich's malls are concentrated in Arizona and California -- as well as betting on continued strength in high-end retail.
According to Citigroup, the top 20% of income earners account for 37% of U.S. consumer spending and Macerich's properties include upscale malls such as:
Queens Center, Kings Plaza Shopping Center and Green Acres Mall in New York City;
Tysons Corner Center in Northern Virginia;
Arrowhead Towne Center, Biltmore Fashion Park, Kierland Commons, Scottsdale Fashion Square and Tucson La Encantada in Arizona;
The Shops at North Bridge and Fashion Outlets of Chicago in Chicago;
Broadway Plaza and Village at Corte Madera in Northern California;
Los Cerritos Center and Santa Monica Place in Southern California;
Washington Square near Portland, Oregon
Macerich also acquired five high-quality malls from Ontario Teachers' Pension Plan in late 2014 for $1.9 billion, The WSJ reports.
"Your local mall might be dead but the mall as a concept is alive and well," Rick Newman says in the accompanying video. "We're just seeing a consolidation in the industry. You can't shrink a mall - there's just more retail space out there than we need which is a big problem for individual chains and the real estate developers."
Macerich PR did not return calls seeking comment.
Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
