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March 27, 1996


AP Business Writer

INDIANAPOLIS (AP) -- The manager of America's largest shopping mall has agreed to buy rival DeBartolo Realty Corp. in a $3 billion deal that will create North America's largest real estate company.

Simon Property Group said Tuesday it will pay $1.5 billion in securities and assume an identical amount of debt for DeBartolo, run by the son of founder Edward J. DeBartolo Sr., who died in 1994.

Edward J. DeBartolo Jr., company chairman and owner of the San Francisco 49ers football team, will step down from executive duties but will serve on the board of the combined company. His sister, Denise DeBartolo York, will also serve on the board.

"We are combining the two most recognized names in the retail real estate business into an organization of unparalleled size, talent and financial resources," said David Simon, president and chief executive of Simon Property.

Simon will be chief executive of the new company. The DeBartolo family plans to retain its investment in the new entity.

Simon Property manages the sprawling Mall of America in Bloomington, Minn., and includes among its properties the Forum Shops at Caesars in Las Vegas. DeBartolo's holdings include the Florida Mall outside Orlando, Fla., and the Aventura Mall near Miami.

The two companies were pioneers of the mall business.

Together, as Simon DeBartolo Group, they will own 110 million square feet in retail space, or more than twice as much as the No. 2 company, General Growth Properties of Des Moines, Iowa, which owns 53 million square feet, Simon said.

The new company, which will be based in Indianapolis, will operate 111 regional shopping centers, 65 community centers and six specialty retail centers in 32 states. The properties generated $32 billion in retail sales last year.

"We believe that size really matters," said Richard S. Sokolov, president and chief executive of DeBartolo, which is based in Youngstown, Ohio. "The beauty of the combination is both companies are very strong in their own right."

The combination will complement Simon's market leadership in the Southwest by allowing it to expand in Florida -- Bartolo's stronghold. Both companies have properties in the Midwest and Northeast.

The merger, expected to be completed this summer, will create a larger and more powerful company. It also will identify a clear leader in the regional shopping mall industry.

"It's exciting, I think, for the industry," said analyst Jill Holup of the McDonald & Co. investment house in Cleveland. "They will be a force to be reckoned with."

The DeBartolo family business has had problems with cash flow in the 1990s. In 1991, it sold the Pittsburgh Penguins hockey team to raise cash, but within two years still had $4 billion in debt. It formed DeBartolo Realty in 1993 and raised about $560 million in a public offering.

Holup said DeBartolo may have had trouble financing improvements at some of their malls. "The perception is they have a fair amount of deferred maintenance," she said.

The merger is likely to eliminate some jobs. Officials of the new company told industry analysts they expected to eliminate about $9 million of $91 million in combined operating costs.

Under the deal, owners of DeBartolo stock or operating partner units will exchange them for 0.68 Simon share or partnership units. The deal values the approximately 89 million DeBartolo securities at about $16.32 each based on Simon's closing price of $24 Monday on the New York Stock Exchange.

On the NYSE, Simon Property stock was down 1.6 percent, or 37.5 cents, at $23.62 a share Tuesday. DeBartolo stock was up 5.1 percent, or 75 cents, at $15.37 a share.

Melvin Simon and Herb Simon will remain co-chairman of the merged company. Sokolov will be president and chief operating officer.

Besides shopping malls, the two families also share an interest in professional sports: Melvin and Herb Simon are co-owners of the Indiana Pacers of the NBA.

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