Simon Property Proposes a Takeover of Macerich (Part 4 of 6)
In hostile deals, the first bid is always low
In most hostile transactions, the buyer has room to bump up the offer. The negotiation process just happens to be public as opposed to private. The question for arbitrageurs is how much Simon Property can pay to get the deal done.
Comparable analysis of the transaction
Unfortunately, there aren’t a lot of good precedents for this transaction. No REIT is alike, let alone retail REITs. In the past decade, there have been two publicly traded REIT deals—the Glimcher Realty Trust–Washington Prime Group (WPG) transaction and the Archstone Smith Trust–Lehman Brothers deal of the bubble years.
Simon Property Group (SPG) is buying Macerich (MAC) for $91 in cash and stock, which comes out to about $21 billion in enterprise value when you include assumed debt. As a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization), that works out to be 32.7 times. As a multiple of funds from operations, or FFO, it’s 38.7 times.
These multiples are much richer than the Glimcher transaction, which was at 18.6x EBITDA and 32.1x FFO. The Archstone deal—which was an apartment REIT transaction, not a retail transaction—went out at 27.6x EBITDA and 40.7x FFO.
In its presentation, Simon Property mentioned that Macerich was being bought out at a 4% cap rate, which was lower than some recent private market transactions. These transactions are not really relevant because there’s no control premium assigned to private market transactions. You aren’t going to value an entire company at the same multiple you would a single mall.
Simon is the only buyer
At the end of the day, Simon Property has no competition, so it doesn’t need to put out a blockbuster bid. It just needs to do enough to get the Macerich board to go along. Since Simon is operating on the basis of only public information, it can’t really assess what synergies there are. Arbitrageurs know there’s upside here, but it probably won’t be dramatic. The stock is trading about 1.3% through the terms of the Macerich–Simon Property deal, and that tells you the Street isn’t expecting a huge bump.
Other merger arbitrage resources
Other important merger spreads include the Hospira–Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is set to close in 2H15. For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors who are interested in trading in the REIT sector should look at the Vanguard REIT ETF (VNQ).
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