UPDATE: Capital Shopping Centres Reveals Acquisition Interest

Capital Shopping Centers Group PLC (CSCG.LN) Thursday said a major shareholder was interested in making a possible cash offer for the U.K. shopping center owner, sending its shares soaring.

Simon Property Group Inc. (SPG), the U.S.'s largest shopping-mall owner, asked CSC in a letter late Wednesday not to proceed with the proposed acquisition of Manchester's Trafford Centre and an equity placing until it had an opportunity to present a potential bid for the company.

Simon Property, which owns a 5.6% stake in CSC, said any offer for CSC would be "at an unspecified premium" to net asset value. CSC's net asset value per share at June 30 was 368 pence. It has a market capitalization of GBP2.32 billion.

"The letter did not contain any offer or indicative offer nor provide any certainty that an offer would be made," CSC said.

However, the news sent CSC's shares surging and at 1017 GMT they traded up 30 pence, or 8.9%, at 367 pence. It was the biggest gainer in the FTSE 100 index, which traded up 0.2%. CSC's shares have climbed 8.6% since May 10, when CSC and Capital & Counties Properties PLC (CAPC.LN) were formed from the breakup of real-estate investment trust Liberty International PLC.

The move by Simon Property, of Indianapolis, Ind., appears to have been prompted by CSC's disclosure Wednesday that it was in advanced talks to acquire the Trafford Centre in Manchester, northwest England, from the Peel Group, and pursue an equity placing in a deal that would make Peel Group Chairman John Whittaker its largest shareholder.

That deal was cemented Thursday despite Simon Property's communication. CSC, whose portfolio of shopping centers includes Lakeside at Thurrock in southeast England and MetroCentre at Gateshead in northern England, said a delay wasn't in shareholders' interests. Shareholders will vote on the deal at an extraordinary general meeting Dec. 20.

A spokesman for Simon Property couldn't be reached for comment immediately.

Simon Property, which has interests in 393 retail real-estate properties, may be turning its attention overseas because it has encountered resistance to making more large acquisitions in the U.S. due to its size. Earlier this year, its attempt to buy bankrupt rival General Growth Properties Inc. failed because the seller feared that an antitrust review would derail the deal.

A recovery in the U.S. mall industry is taking hold after two years of recession. Simon Property is seeing gains in occupancy, tenant sales and lease rates.

CSC will pay GBP747.6 million to buy Trafford Centre, which has 1.9 million square feet of retail, catering and leisure space that attracts 35 million customer visits a year. The Trafford Centre, whose tenants include Selfridges, John Lewis Partnership PLC, Marks & Spencer Group PLC (MKS.LN) and Debenhams PLC (DEB.LN), has net debt of GBP798 million and other liabilities of GBP54 million.

CSC said the implied price of GBP1.6 billion is a 3% discount to a Nov. 1 external valuation of GBP1.65 billion.

In return, Whittaker's Peel Group will receive shares and convertible bonds equivalent to a 19.9% stake in CSC, making it the company's largest shareholder ahead of the Gordon family, which has an interest of about 16%. Whittaker also will put up GBP77 million to participate in a placement of new CSC shares representing 9.9% of CSC.

The placement of 62.3 million new ordinary shares will provide "headroom in terms of cash and committed facilities" of about GBP360 million and reduce CSC's loan-to-value ratio to 47% from 53%, in line with the board's desired range of 40% to 50%.

Whittaker, ranked No. 616 in the Forbes 2010 list of billionaires alongside U.S. casino-resort developer Steve Wynn with a net worth estimated at $1.6 billion, will become a non-executive director and deputy chairman of CSC.

His Peel Group has holdings that include Liverpool John Lennon Airport and, in partnership with Deutsche Bank AG's (DB) Rreef infrastructure fund, Port of Liverpool and Manchester Ship Canal.

-By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; jonathan.buck@dowjones.com

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