- The Washington Times - Wednesday, October 25, 2006


An Israeli real estate investment firm said yesterday it has offered to invest up to $1.2 billion to rebuild struggling mall developer Mills Corp., saying the company should not go ahead with plans to offer itself up for sale.

Gazit-Globe Ltd. said in a Securities and Exchange Commission filing that it has acquired 9 percent of Chevy Chase-based Mills’ shares. Gazit-Globe, Israel’s largest real estate investment company, said it wants Mills’ board of directors to agree to recapitalize and not go ahead with plans to sell all or part of the company.

After the announcement, shares of Mills rose more than 13 percent yesterday on the New York Stock Exchange, rising $2.34 to close at $19.35. The stock has traded between $12.27 and $53.57 over the last 52 weeks.

In yesterday’s filing, Gazit-Globe said Mills Chief Executive Officer Mark Ordan had “expressed an interest” in the deal. In a statement late yesterday responding to Gazit-Globe, Mills said it is exploring all strategic alternatives for boosting the value of the company and is not predisposed to a sale or any other option at present.

The outcome “will be determined through a competitive process in which all interested persons have a fair opportunity to compete … Gazit-Globe is welcome to participate … and has been so advised… on numerous occasions, as is reflected in Gazit-Globe’s [filing], through in-person meetings and other contacts,” the statement said.

The company’s longtime chief executive, Laurence Siegel, retired abruptly last month, and incoming CEO Mark Ordan said he would pursue a sale of Mills. The real estate investment trust also made a deal in August that ends its stake in a troubled New Jersey mall project. Analysts said the developments signaled a sale of Mills could come as early as this year.

But Gazit-Globe Chairman Chaim Katzman said yesterday that he feared Mills would sell itself at a “distressed price.” He urged Mills to consider the recapitalization proposal.

“We believe Mills should be rebuilt, not sold,” he said.

The SEC has been investigating Mills regarding its accounting practices. The company has yet to file an annual report or quarterly results this year as required by SEC rules and expects to restate earnings dating back to 2000. Mills obtained a $2 billion loan from the investment firm Goldman Sachs to help it stay afloat. The loan is due at the end of the year.

Gazit-Globe owned 4.9 percent of Mills shares until this month, when it boosted its holdings, including $37.6 million that a Gazit-Globe subsidiary bought between Oct. 16 and 20. Mr. Katzman first approached Mr. Siegel with the proposal in September, then reiterated the offer when Mr. Ordan took over in October.

As part of the recapitalization plan, the Israeli firm proposes paying $24.50 for new Series B common stock. Gazit-Globe would also assume the majority of seats on Mills’ board of directors, according to the SEC filing.

On Oct. 20, Mr. Katzman met with Mr. Ordan to explain why he thought the new investment would be a better option than a sale. Mr. Katzman said the funds would give Mills time to prop up its portfolio of real estate holdings and invest in new projects. It would also simplify the company’s capital structure to “lead to increased transparency in financial reporting,” the filing states.

“It is not a question of whether or not the board must take action to ensure the continuity of Mills in order to restore profitability and leadership to the industry, but rather what kind of action is necessary and appropriate,” Mr. Katzman said in a statement yesterday.

Mr. Ordan called Gazit-Globe Tuesday and “expressed an interest in continuing a dialogue” about the proposal, and said he would arrange a meeting for Mr. Katzman with a Mills special committee, according to the filing.

Yesterday, Mills also announced that it would not pay a dividend in the third and fourth quarters, citing the terms of its loan from Goldman Sachs.

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