US-based Simon Property Group Inc, which owns 5% of Capital Shopping Centres Group, said Wednesday that it will vote against CSC's planned acquisition of the Trafford Centre Group at the forthcoming EGM.

In a letter to the Board of CSC, Simon Property Group Chairman and CEO David Simon urged CSC to reconsider the proposed acquisition.

"We firmly oppose the proposed transaction and, as the owner of more than 5% of Capital Shopping Centres Group PLC's share capital, will vote against it at the forthcoming EGM. We strongly encourage all other CSC shareholders to do the same," Simon said.

"When you first contacted us, just before you announced this proposal, we asked you to pause before proceeding headlong into ceding significant control to Peel without obtaining any premium to CSC's latest stated NAV.

We have now spent considerable time analyzing the additional information that you have published about the proposed Trafford Centre transaction, and are even more disturbed and disappointed by the profound value destruction proposed to be inflicted on CSC and its shareholders," the letter said.

Simon Property said it believes that CSC is substantially overpaying for the Trafford Centre Group. It added it believed that the proposed acquisition would diminish CSC shareholder value.

"CSC is transferring significant control to Peel, while failing to extract a premium for it, and is issuing equity to Peel at a discount to CSC's latest stated NAV; and the GBP1.6 billion Trafford Centre transaction is cash negative to CSC by GBP29.6 million on an annual pro forma basis, taking the entire transaction into account," Simon said.

"Moreover, the debt service coverage ratio at Trafford Centre is currently below covenant threshold; future operating cash flows are likely to be unavailable for distribution; and the Trafford Centre transaction will reduce CSC's dividend coverage ratios, with consequent pressure on CSC's ability to pay dividends in light of the high 6.1% cost of Trafford Centre Group's assumed debt, as compared to CSC's 5% nominal acquisition yield," he argued.

Simon Property said it had previously urged CSC to allow it the opportunity to review very limited and specific due diligence information with respect to CSC, which would assist it to formulate an acquisition proposal that would afford CSC and its shareholders with a superior alternative to the Trafford Centre acquisition.

"By declining to provide us with the requested limited due diligence information, you have constrained the exploration of an opportunity to benefit your shareholders. If the proposed Trafford Centre acquisition is approved, we would need to consider liquidating our position in CSC," it concluded.

The Peel Group currently holds 0.3% of CSC's shares, Donald Gordon owns 13.3%, other South African investors, including Coronation Fund Managers, Public Investment Corporation, Investec Asset Management, Sanlam Investment Management, Old Mutual Asset Managers and Foord Asset Management, jointly hold 28.8%, Simon Property owns 5.1% and there is a 52.4% public float.

CSC announced its plans to acquire The Trafford Centre on November 25 after it reached agreement with Tokenhouse Holdings, one of the holding companies of the Peel Group, under which it will acquire The Trafford Centre Group together with approximately GBP77 million in cash from Peel.

In exchange CSC will issue to Peel up to 167.3 million new ordinary shares in CSC and an aggregate nominal amount of up to GBP209 million 4.076% convertible bonds to be issued by CSC.

The proposed acquisition for GBP 747.6 million, values the Trafford Centre at GBP1.6 billion. The acquisition involves an equity purchase price of GBP747.6 million for The Trafford Centre and a further amount of approximately GBP77 million in respect of a cash contribution by Peel, in return for the issue of consideration shares and convertible bonds by CSC to Peel.

The Trafford Centre, located near Manchester, is one of the UK's most successful retail and leisure destinations attracting 35 million customer visits annually. It has 1.9 million square feet of retail, catering and leisure space. With more than 230 units, it has strong anchor clients including Selfridges, Debenhams, John Lewis and Marks & Spencer.

Post the acquisition, Peel will hold around 19.9% of CSC's enlarged issued share capital and around 24.9% assuming the dilution of the convertible bonds, and John Whittaker, Chairman of Peel, will join CSC's board as a Non-executive Deputy Chairman, CSC said.

The acquisition is subject to the approval of CSC's shareholders at an Extraordinary General Meeting which is expected to be held on 20 December. CSC CEO David Fischel told a presentation earlier this week that the Gordon Family is supportive of the transaction.

If approved, the acquisition is expected to be completed by 22 December.

Source: I-Net Bridge