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ndianapolis-based Simon Property Group (NYSE: SPG) Monday agreed to acquire Roseland’s Chelsea Property Group (NYSE: CPG) and its operating partnership units for $3.5 billion. Simon will also assume Chelsea’s existing indebtedness and preferred stock, which totaled $1.3 billion as of March 31.Under the terms of the agreement, Simon Property will pay $66.00 per share for all of Chelsea’s outstanding common stock and units. The consideration to Chelsea’s common shareholders comprises $36.00 in cash, $15.00 of Simon Property common stock based on a fixed conversion ratio of 0.2936 per Chelsea common share and $15.00 of a new issue of Simon Property convertible preferred stock.The new series of convertible preferred shares yields 6.0%, has a liquidation preference of $50 per share and is convertible into Simon Property common stock at $63.86 per share, with a contingent conversion feature of an additional 25%. This will be a taxable transaction to Chelsea common shareholders.Chelsea unitholders will receive 100% of their consideration in equity, equally split between Simon Property common units and convertible preferred units. Chelsea will be managed as a division of Simon Property and will continue to be headquartered in Roseland, with David Bloom, Chelsea’s chairman and CEO, and the existing Chelsea management team continuing in their current roles. Bloom will also join the Simon Property board as an advisory director.Simon Property expects an initial year unlevered yield of 7.2% from the transaction, and expects the transaction to be at least $0.09 per share accretive to 2005 funds from operations (FFO) and $0.18 accretive to 2006 FFO.The transaction, which has been approved by the boards of directors of both companies, is subject to approval by Chelsea’s shareholders and is expected to close during the fourth quarter.Simon Property expects to fund the cash portion of the transaction on an interim basis with a $1.8 billion acquisition facility. Simon was advised by UBS Investment Bank and by Morgan Stanley. Chelsea was advised by Merrill Lynch.”Chelsea is the preeminent brand in the premium outlet industry, just as Simon is in the regional mall industry, and we’ve had three very successful joint ventures between the two companies,” David Simon, CEO of Simon Property, said.Chelsea’s properties include 31 outlet centers in the United States and four in Japan. It has centers in the New York, Los Angeles, Boston and Orlando metro areas and Edinburgh and Michigan City in Indiana.Simon currently owns or has an interest in 248 properties in 37 states as well as Canada and Puerto Rico. Simon also has interests in 48 properties in Europe.At the close of trading, shares of Chelsea Property Group were up $7.01 to $65.25, while Simon Property shares fell $0.32 to $51.98.