Simon warns of CSC sell-off if Trafford deal goes ahead

(REUTERS)

The battle between Capital Shopping Centres and Simon Property escalated yesterday after the US group threatened to dump its 5.1 per cent stake in Capital if it goes ahead with plans to buy the Trafford Centre near Manchester.

In an open letter to Capital's board, Simon said it wanted the blue chip group to reconsider the £1.6bn acquisition. The US property group also called for access to Capital's books as it tries to put together a takeover bid.

In response, Capital said that, in the absence of an indicative offer from Simon, it continued to "believe that it is not appropriate to provide SPG with the non-public due diligence information it has requested".

"The combined circular and prospectus [for the Trafford deal] sent to CSC shareholders contains comprehensive information regarding CSC and the Trafford Centre, including updated valuations," Capital said.

The UK group also attacked Simon's claims that the deal would "diminish CSC shareholder value". The Trafford Centre's current owner, John Whittaker's Peel Group, will become Capital's biggest shareholder with a 19.9 per cent stake as a result of the deal.

Voicing various concerns, including claims that Capital was "overpaying" for the shopping centre and transferring control to Peel "while failing to extract a premium for it", the US group's chief executive, David Simon, said the company was "disappointed by the profound value destruction proposed to be inflicted on CSC and its shareholders". The acquisition would also limit CSC's ability to make future payouts to shareholders, he said.

"If the proposed Trafford Centre acquisition is approved, we would need to consider liquidating our position in CSC," Mr Simon added in the letter to Capital directors.

Capital claimed otherwise, saying the US group's analysis was "selective and creates an inaccurate representation of the overall transaction".

As for its own takeover bid for Capital, Simon said it would have "no alternative but to terminate its approach" if the UK group does not provide it with the requested due diligence materials.

The latest barrage between the two companies comes days of ahead of the Trafford shareholder vote on 20 December, with Capital needing the backing a majority of investors to proceed with the purchase of Trafford.

Simon said it will vote against the deal, while the South African businessman Donald Gordon, with 13.3 per cent of shares, is "fully supportive" of the proposed transaction, according to Capital. The UK group's management has also spent recent days meeting other South African investors, who together own nearly 29 per cent of the company.

Weighing up the various claims and counter-claims, Liberum Capital said that despite putting forward some "fair" arguments, Simon looked "distinctly wrong-footed". "We think [the letter] can be interpreted to suggest a lower probability of a bid from Simon," the broker said, expecting shareholders to back the deal.

Shares in Capital fell 5 per cent to 386.2p yesterday.