Mills Corp. ( MLS) shareholders may be looking for a quick sale of the beleaguered company, but the market shouldn't expect a merger announcement anytime soon. Sources say that complications surrounding the mall owner's joint venture agreements and general confusion over the value of the company's giant Xanadu development project in New Jersey's Meadowlands are stalling matters. The real estate investment trust put itself up for sale in February amid numerous financial woes. First-round bids were completed in early June, and second-round bids are now in the process of being submitted. "I don't think third-round bids will be for a while," says one source involved in the bidding process. The stickiest issue remains the complicated nature of the joint venture agreements the real estate investment trust has with its primary equity partner, the German fund KanAm, the source says. Add in the Securities and Exchange Commission investigation surrounding Mills' ongoing financial restatements, and the bidding process remains knotty.
However, the source involved in the bidding process says, "Mills is being very cooperative. Put yourself in Mills' situation. They're being as cooperative as they can given the fact that they're overwhelmed."
As well, this source says Mills is fetching considerable interest in its properties because finding large mall portfolios is not an easy task, as Simon Property, General Growth and Westfield continue to build an "oligopoly" in the mall sector. "There's plenty of money and people who want this," the real estate investor says. And while Mills has plenty of complex issues on the table, one of the sources involved in the bidding process notes that the problems are less complex than the tax-structure issue at Trizec Properties ( TRZ). Trizec, an owner of office properties, was eventually
sold last month for $9 billion after a unique multiparty deal was arranged. Meanwhile, a look at Mills' shareholder base shows some very wise people have taken large stakes in the company. For instance, Seth Klarman, a noted value investor who runs The Baupost Group, began taking a Mills position in the winter. At the end of the first quarter, Klarman held 2.6 million shares, making it his second-largest holding. Klarman did not return a call seeking comment for this story. As Klarman was quoted as saying in a recent Wharton Journal article, "The Baupost Group seeks situations triggered by urgent, panicked, or mindless selling." Klarman and others might eventually prove to be right about Mills. But it looks like it will take some more time to realize the value.