UK-based Capital Shopping Centre Group's bid to buy 100% of The Trafford Centre Group took another twist on Monday, with the Simon Property Group's alternative funding proposal for the deal being rejected by CSC.

US-based Simon Property Group (SPG), which owns 5% of CSC, has threatened to vote against the planned acquisition at the extra ordinary meeting next week unless changes to the terms of the deal are made.

SPG is of the opinion that CSC is substantially overpaying for the Trafford Centre. It also argues that the acquisition would diminish 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 [net asset value]; 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 in a statement last week.

CSC released the details of its plans to acquire the centre on November 25 after it reached agreement with Tokenhouse Holdings, one of the holding companies of the Peel Group.

The terms of the transaction are such that Capital will buy the centre for £77 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 £209 million convertible bonds to be issued by CSC.

CSC also last week raised £221.2 million before commissions and expenses from the placing of 62.33 million new ordinary shares at 355 pence per share. The placing represented 9.9% of the company's existing shares immediately prior to the placing, the group said.

The Trafford Centre, located near Manchester, is regarded as of the UK's most successful retail and leisure destinations attracting 35 million customer visits annually.

In a latest twist, Simon said in a letter to CSC's board: "We recognise that Trafford Centre may be a strategically important asset, although we continue to have concerns regarding the agreed purchase price.

"To a greater extent, we are concerned that the funding of the transaction in shares, on the agreed terms, results in CSC and by extension its shareholders, overpaying for the Trafford Centre.

We have been speaking to other shareholders in CSC, who have expressed similar concerns. If you insist upon proceeding with the Trafford Centre acquisition, the only feasible solution to address our funding concern is to issue the securities that are effectively financing the transaction at a higher price.

This would avoid the reduction in the company's net asset value and the destruction of shareholder value, indeed at the right price, shareholder value would be enhanced," Simon said.

In terms of the current proposal, CSC proposes to issue up to 224.1 million new ordinary shares on a fully diluted basis, 20.9 million of which will be issued at 355p per share, and 203.2 million shares issued at 368p per share, or a blended share price of 367p. This represents a 2.7% discount to NAV per share of 377p.

In its response, CSC said it considers that what SPG is suggesting is "incapable of implementation and completely impracticable".

"It is not open to CSC unilaterally to alter the terms of its legally binding contract with Peel. Therefore, what SPG proposes does not provide a genuine alternative for CSC shareholders," it said.

Source: I-Net Bridge