Indianapolis-based Simon will pay about $2 billion to buy a 28.7% stake in Klépierre SA from BNP Paribas SA, making it the largest shareholder in the Paris, France-based owner of 271 European shopping centers. Separately, it will pay $1.5 billion to buy Farallon Capital Management LLC out of 26 U.S. shopping malls owned through a JV.
In the bigger of the two deals, BNP Paribas will receive €28 ($36.77) per Klépierre share, almost 20% more than the property manager's closing share price on Wednesday. Klépierre shares traded Thursday at €24.50, up €1.11, or 4.7%.
The premium reflects a deal that comes with significant management control and establishes Simon as Klépierre's largest shareholder, ahead of BNP, which will retain 22.2% of the company. Simon chairman and CEO David Simon will take over as chairman of Klépierre's nine-member board on which Simon will hold three seats.
"The investment in Klépierre represents an attractive opportunity for Simon as we seek to broaden our global footprint," said David Simon. "We have long been admirers."
Klépierre, which is listed on the Euronext Paris exchange, held assets valued at €16.2 billion at the end of 2011.
BNP, France's No. 1 bank, is raising cash and exiting riskier assets to boost its Tier 1 ratio, a key measure of capital reserves, to 9% by the start of next year after booking huge writedowns on European sovereign debt investments in 2011.
BNP said that the about €1.5 billion in cash generated by the sale would increase its Tier 1 ratio by 32 basis points, leaving it about 68 basis points shy of its 9% target.
Simon's acquisition of the Klépierre stake comes just over a year after it abandoned an earlier European expansion effort when it failed with a £2.94 billion ($4.62 billion) hostile bid for Britain's Capital Shopping Centres Group plc. The hostile offer was withdrawn in January 2011 after Capital refused to open its books to Simon for due diligence. Simon retains a minority stake in Capital.
Closer to home, Simon's acquisition of Farallon Capital's stakes in 26 U.S. malls ends a partnership the companies struck in struck in February 2007 when they teamed up to pay $7.9 billion for Mills Corp. Simon and Farallon split the $1.64 billion of equity investment in that deal.
The deal with Farallon, a hedge fund based in San Francisco, allows Simon to increase its holdings in 24 of the 26 malls to 50% or more, where previously it had held a minority stake in all but 8 of the operations.
The $1.5 billion price tag includes repayment of Mills's senior loan facility, mezzanine loan and the retirement of preferred stock.
Simon said that the combined deals would boost its funds from operations for the current year to between $7.35 and $7.50 per share, up from earlier guidance of $7.20 to $7.30 per share.
Simon tapped Lazard, J.P. Morgan Securities LLC and Goldman, Sachs & Co. for financial advice on the Klépierre transaction. It turned to Bank of America Merrill Lynch for advice on the Mills deal.
Shares in Simon closed Wednesday at $138.22 and were trading in the after-hours market Thursday morning at $137.92, down $0.30. BNP Paribas shares traded Thursday at €37.24, up €1.56, or just over 4%.
KeyBanc Capital Markets Inc. brought in Anne-Marie Peterson as a managing director in its leveraged finance group to work with middle market private equity firms. For other updates launch today's Movers & shakers slideshow.
The shares prices of publicly traded private equity firms posted a disappointing performance for most of the first half of 2014; over the past month, however, the trends have flipped. More video