UPDATE: CSC Tweaks Mall Deal Terms, Details Higher Valuation

Capital Shopping Centres Group PLC (CSCG.LN) Friday revised the terms of its planned purchase of Manchester's Trafford Centre and explained in detail why it believes that Simon Property Group Inc.'s (SPG) proposal to offer about GBP3 billion to buy CSC undervalues the U.K. regional shopping center owner and its prospects.

CSC, formed in May from the breakup of real-estate investment trust Liberty International PLC, said it had a potential net asset value of up to 625 pence per share, substantially above Simon Property's indicative offer price of 425 pence.

In an interview with Dow Jones Newswires, CSC Chief Executive David Fischel described Simon Property's proposal as "opportunistic and inadequate."

The latest salvo from CSC illustrates just how far apart the two side are on price, reducing the chances of a friendly deal, which Simon Property had wanted, and increasing the likelihood that the U.S. shopping mall operator will walk away rather than become embroiled in a costly hostile battle.

A spokesman for Simon Property didn't immediately returns calls.

At 0934 GMT, CSC's shares traded down a penny, or 0.2%, at 418 pence while the FTSE 100 index traded down 0.6%. CSC's shares have gained 24% in value since Nov. 24, the day before the Trafford Centre deal was announced and Simon Property made its interest public.

CSC's higher valuation stems from an increase in net asset value to 390 pence at Dec. 31 from 368 pence six months earlier, and includes: stamp duty land tax benefits of 29 pence per share; the potential of mid-cycle commercial property valuations worth another 87 pence; asset management and development opportunities worth 30 pence; and a 12.5% premium for the portfolio of a further 89 pence.

Fischel said it was the wrong time in the commercial property cycle to sell the company. Having come through an economic period that proved difficult for the entire U.K. property sector, Fischel said the company now was strongly positioned for income and value growth. "Shareholders should be holding out for mid-cycle valuations, not bottom-of-the-cycle valuations," he said.

At the same time, CSC argues that its assets merit a premium due to the scale and quality of its portfolio and in the context of a highly regulated planning environment in the U.K. that would make it tough to replicate. Consultant DTZ considers the portfolio worth a premium of 12.5% to 16% over the individual property valuations, CSC said in its statement.

CSC has used what Fischel termed a change in circumstances brought about by Simon Property's interest to extract more favorable terms from Peel Group for its acquisition of the Trafford Centre, which attracts 35 million customer visits a year and boasts tenants such as Selfridges, John Lewis Partnership PLC, Marks & Spencer Group PLC (MKS.LN) and Debenhams PLC (DEB.LN).

Under the revised terms, the implied value of the Trafford Centre remains unchanged at GBP1.6 billion, roughly half of which is debt, but convertible bonds that Peel Group agreed to acquire will be repriced at 400 pence, up from 368 pence, effectively lowering the stake it will receive in CSC to 23.2% from 24.7% previously.

"The repricing of this transaction reflects my strong belief in the growth yet to come at CSC," said Peel Group Chairman John Whittaker in a statement.

CSC, whose 13 regional shopping centers in the U.K. include Lakeside at Thurrock in southeast England and MetroCentre at Gateshead in northern England, Nov. 25 announced the Trafford Centre acquisition and an equity placing that appears to have jolted Indianapolis, Ind.-based Simon Property into action.

Early last month, Simon Property, which has interests in 393 retail real-estate properties, submitted an indicative proposal to buy CSC, in which it holds a 5.6% stake. CSC rebuffed the proposal, saying it undervalued the company and its prospects.

An extraordinary general meeting Dec. 20 for CSC shareholders to vote on the Trafford Centre purchase was opened and adjourned to allow time for Simon Property's interest to be explored. However, CSC Friday recommended that shareholders approve the Trafford Centre deal at a reconvened EGM Jan. 26.

"(Shareholders) should completely disregard the Simon Property Group proposal, which is clearly inadequate," said Fischel, adding that the revised terms of the Trafford Centre deal have made "a good story a very compelling story" for shareholders.

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

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