Macerich Co. shares rose more than 6% on Dec. 13 in heavy trading volume after a third-party media report suggested rival mall real estate investment trust Simon Property Group Inc. may be once again weighing a buyout of the company.
A Simon Property Group spokesperson reportedly told Bloomberg News that the company has "no interest" in buying Macerich. But speculation about a potential merger has been building all year, in the wake of Brookfield Property Partners LP's play for GGP Inc., and after activist campaigns yielded significant changes in Macerich's managerial lineup.
"Simon has always been positioned as the natural acquirer [of Macerich] because of their size, No. 1, the scalability of the business, and then the fact that historically they've had the strongest balance sheet in the business," James Sullivan, a REIT equity research analyst at financial services firm BTIG, told S&P Global Market Intelligence. "They really have the legroom, the liquidity, to do a deal."
It would not be the first time the two met on the M&A stage. In 2015, Simon waged a contentious campaign to acquire Macerich that ultimately failed, despite the $95.50 highest offer price that may now, with the industry in the throes of the "retail apocalypse" and all mall REIT stocks trading at lower values, appear generous. Macerich shares are currently trading around $48 apiece.
Circumstances are also different today in other ways. Macerich CEO Arthur Coppola, a company veteran who had strongly opposed Simon Property Group's advances in 2015, is stepping down at the end of the year. Sullivan said Coppola's replacement, CFO and Treasurer Thomas O'Hern, who is 62, likely would be amenable to a deal at this juncture in his career, and his name is not as closely associated with the 2015 squabble.
"Would he be more inclined to sell the business than Art Coppola would be?" Sullivan said of O'Hern. "I think it would be logical that people would think so."
Simon Property Group and Macerich did not respond to S&P Global Market Intelligence's requests for comment.
Sullivan and others have framed the two companies as a natural fit, perhaps more than any other regional mall REIT pair. California represents a significant blind spot in the Simon Property Group portfolio, and the state is Macerich's home turf. Macerich also commands highly productive properties, including Queens Center in Queens, N.Y., and Tysons Corner Center in Northern Virginia, that would complement the Simon Property Group set.
It is "appropriate" to think about a transaction between the two at this juncture, Sullivan said. Simon Property Group's share price is on the rise again and trading near its trailing 12-month high, while Macerich's share price is near its low. A surprising 50/50 outlet center development joint venture between the two companies, detailed earlier in 2018, would suggest the companies are in constructive conversation.
For Kevin Brown, equity REIT analyst at Morningstar, Coppola's departure represents the most significant catalyst for a potential deal.
"We'll have to wait and see what the new management is willing to do," he said. They're being brought in to try to maximize value for the company, and we'll see how they broach that."
Jeff Green, a retail feasibility consultant with more than three decades in the business, put the likelihood of a Macerich takeover at some point in the next year or two at "more than 50%." He said Macerich will become an even more attractive target in the coming months as it continues to off-load weaker assets. And there are buyers in the market for B malls.
"A lot of what I'm hearing is probably gossip," Green said of the talk about a Simon-Macerich tie-up. "But I certainly see the seeds being planted, in terms of how Macerich is now going to try to position themselves."