The retirement of Larry Siegel as CEO of Mills Corp. helps pave the way for a sale of the company, but terms of his departure may exasperate investors who have watched stock prices for the Chevy Chase, Md.-based mall developer plummet from more than $53 a year ago to $17.01 as of Oct. 24.

In early October, Mills Corp. (NYSE: MLS) announced that Siegel had stepped down and now serves as non-executive chairman. In addition to a $2.5 million severance, Siegel gets $10.5 million if the company is acquired by the end of 2007.

There is “lots of room for outrage in the retirement agreement,” Morgan Stanley analyst Matthew Ostrower wrote in an Oct. 2 report. The terms “are especially surprising given revelations in the 8-K that the company may have been erroneously charged for a variety of benefits, including the use of the corporate aircraft by the CEO,” Ostrower stated.

The $10.5 million creates a conflict of interest, according to Banc of America Securities analyst Ross Nussbaum. “It could incentivize (Siegel) to vote for a sale of the company at a lower price than if he were receiving a stock payment.”

For shareholders, new ownership is preferable to refinancing the overextended REIT, analysts say. Mills may garner a price between $15 and $24 per share in a sale, while refinancing would result in share prices between $13 and $17, Nussbaum estimated on Oct. 6.

On Oct. 25, however, Israel-based Gazit-Globe Ltd. announced it had acquired 9% of Mills' common stock and was ready to invest up to $1.2 billion to recapitalize the company. At press time, Mills hadn't responded to the proposal.

Shareholder resentment over Siegel's compensation aside, Mills is working to avoid further depreciation of share prices. Mills declined interviews for this report, but several recent developments reaffirm that Mills is preparing to be acquired, a goal the company openly sought in June but has yet to attain.

At the end of September, the New York Stock Exchange extended Mills' deadline for delisting by three months to April 2. By Oct. 6, Mills had sold its interests in three international malls to Ivanhoe Cambridge Inc. for approximately $988 million, $400 million of which will go toward paying down a $1.9 billion credit line with Goldman Sachs Mortgage Co. Mills must pay at least $850 million to Goldman to extend the loan beyond 2006, unless it has agreed to a sale by then, according to Nussbaum.

Mills is under investigation by the Securities and Exchange Commission and hasn't published financial statements in almost a year, making it difficult for any suitor to calculate a purchase offer. Some analysts expected the company to file its 2005 financial statement by the end of October.

The $13 million in Siegel's severance and bonus is largely an extension of long-promised compensation for such a sale, says analyst Rich Moore of RBC Capital Markets. Siegel's April 2004 contract would have given the CEO bonuses between $8 million and $12 million had he sold the company this year.

Siegel's agreement to the deal suggests an imminent sale, Moore believes. “Why would Larry Siegel agree to take one-sixth of the severance he thinks he deserves with the remaining five-sixths only on condition of a sale, unless he knew a sale was occurring?”

MILLS CORP. AT A GLANCE

Holdings: 48 million sq. ft. of retail space

Stock Symbol: NYSE: MLS

52-week high stock price: $53.57

52-week low stock price: $12.27

Oct. 24 closing stock price: $17.01

Under Development: Meadowlands Xanadu, N.J.; 108 N. State Street, Chicago; Mercati Generali, Rome, Italy; Potomac Center, Woodbridge, Va.