$5.78-Billion Deal Would Join O.C. Shopping Giants

In a deal that would give one company ownership of half of Orange County’s regional shopping centers, Simon DeBartolo Group Inc. said Thursday that it plans to acquire a competitor for $5.78 billion.

Simon DeBartolo, which owns the Mission Viejo and Laguna Hills malls, is buying Corporate Property Investors Inc., owner of the Brea and Westminster malls.

If completed, Simon would become Orange County’s second-largest retail landlord with 4.1 million square feet of top-quality space in every region of the county.

The Irvine Co. owns 4.9 million square feet, including Fashion Island Newport Beach, Tustin Marketplace and Irvine Spectrum Center, but about half of its tightly clustered holdings are in 18 neighborhood shopping centers in South County.

However, the county’s largest landowner has another 1.4 million square feet under development in nine projects. When completed, they will boost the Irvine Co.’s holdings to 6.4 million square feet.

For shoppers at the Brea and Westminster centers, the deal likely will result in the introduction of frequent-buyer programs. Simon’s 199 centers participate in the V.I.P. Visa program, which gives cardholders a 2% rebate on purchases. More than 4,000 shoppers have signed up for the program at the Laguna Hills Mall since September, said marketing director Shelly Cotellesse.

But for retailers, the deal could be bad news. “I think it’s a legitimate question whether they will be able to exert the leverage on retailers and push rents higher,” said Greg Andrews, a senior analyst at Green Street Advisors in Newport Beach. “There will still be options for mall tenants, just not as many.”

The Brea Mall is Orange County’s second-largest at 1.3 million square feet. It opened in 1977 and is anchored by Nordstrom, Macy’s and Robinsons-May, the latter two having recently completed expansions and renovations. It had $344 million in sales in 1996, the latest figures available, according to city records.

Westminster Mall is the county’s seventh-largest at 1.1 million square feet. It opened in 1974 and is anchored by Robinsons-May, Sears and J.C. Penney. It posted $208 million in 1996 sales.

The acquisition of New York-based CPI’s 23 shopping centers will boost Simon’s national portfolio to 222 retail properties and eight office buildings comprising 175 million square feet. That is more than all four of its closest competitors combined.

“We believe in the benefits of scale,” said Richard S. Sokolov, president of Indianapolis-based Simon. He said the company’s profit margins have grown as it has added to its portfolio, eliminating duplicative functions such as purchasing and accounting along the way.

Since 1996, the company has bought or agreed to buy about $10 billion worth of shopping centers, including the 1996 purchase of DeBartolo Realty Corp. and a joint venture with Santa Monica-based Macerich Co. to buy 12 malls in smaller cities throughout the country.

The deal will give Simon control of some of the country’s largest and best-performing malls, including Roosevelt Field Mall in Garden City, N.J.; South Shore Plaza in Braintree, Mass.; and Metrocenter in Phoenix. It also gives Simon a much larger presence in key areas like Atlanta and Boston.

Included in the deal is the General Motors office building in Manhattan, which Simon plans to sell. The company believes it can trim $40 million in costs, and that the deal will add to its earnings this year.

The $5.78-million price tag was more than $700 million higher than most analysts expected CPI to fetch. There was stiff competition from several other bidders including Columbia, Md.-based Rouse Co. and Vornado Realty Trust, which filed a joint bid for the properties.

Under the agreement with Simon, CPI shareholders, led by a pension fund of AT&T; Corp., will get about $2.41 million in cash or $90 a share, $1.88 billion of Simon’s common stock and $510 million in 6.5% preferred convertible stock. Simon also will assume $978 million of CPI’s debt.

Hans Mautner, CPI’s chairman and chief executive, will become a vice chairman of the newly combined company. Its president, Mark Ticoton, will become a senior vice president. The deal still requires shareholder and regulatory approval. Simon shares fell $1.13, to $32.50, in New York Stock Exchange trading Thursday.

Times Correspondent Melinda Fulmer contributed to this report.