Simon Property Offers $6.5 Billion for General Growth

Photographer: Matthew Staver/Bloomberg

Cars are parked outside General Growth Properties Inc.'s Park Meadows mall, a 1.6 million square-foot super regional shopping center in Lone Tree, Colorado. Close

Cars are parked outside General Growth Properties Inc.'s Park Meadows mall, a 1.6... Read More

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Photographer: Matthew Staver/Bloomberg

Cars are parked outside General Growth Properties Inc.'s Park Meadows mall, a 1.6 million square-foot super regional shopping center in Lone Tree, Colorado.

Simon Property Group Inc. stepped up its three-month quest to acquire rival General Growth Properties Inc., making a “best and final” $6.5 billion bid for the bankrupt mall company.

The offer is valued at $20 a share, Indianapolis-based Simon said yesterday in a statement. It consists of $5 in cash, $10 in shares of Simon stock and the distribution of shares in a new company, General Growth Opportunities, valued at $5.

General Growth supports a financing plan led by Brookfield Asset Management Inc. that would keep the mall owner independent and issue stock warrants to the Toronto-based Brookfield and partners Pershing Square Capital Management LP and Fairholme Capital Management LLC. Simon said yesterday it’s also willing to replace Brookfield in an investment plan, without requiring warrants, to keep General Growth independent.

“These offers are best and final,” Simon Chief Executive Officer David Simon said in a letter to General Growth’s board. Simon “will not participate in the bidding process in the GGP bankruptcy proceeding in any way once GGP commits to issue the warrants associated with the latest Brookfield-sponsored plan.”

Pershing Square’s Chief Executive Officer William Ackman responded with a letter to General Growth’s board offering to forgo 17 million interim warrants if today’s bankruptcy hearing went forward this morning. Ackman’s offer was contingent on Brookfield and Fairholme receiving their warrants.

“By waiving our right to receive the warrants we previously bargained for, you should understand that we are foregoing $128 million of value,” Ackman wrote.

He made the offer in an effort to push through Brookfield’s plan for General Growth, saying Simon’s offer posed antitrust risks because it would link the nation’s two largest mall owners.

Simon’s original bid on Feb. 16 would have given General Growth stockholders $9 a share, including $6 in cash. That was turned down as too low.

Both that plan and the new one pay all General Growth unsecured creditors, who hold about $7 billion in debt, in full.

General Growth, based in Chicago, closed yesterday at $15.84 in New York Stock Exchange trading.

The Brookfield plan must be approved by the U.S. Bankruptcy Court overseeing the case.

Simon’s “$20 offer is fair to GGP shareholders,” Cedrik Lachance, senior mall analyst at Newport Beach, California-based Green Street Advisors, said in an interview last night. “You can take Simon’s cash today or you can wait for Brookfield to potentially create a similar value.”

General Growth Rises

The rise in General Growth’s share price reflected investor expectation that Simon would make another offer, he said.

David Simon said last week that warrants would make a purchase of General Growth too expensive. Simon estimates the warrants could cost General Growth shareholders $895 million, while General Growth puts the value at about $519 million.

David Keating, a spokesman for General Growth, said the company had no comment on Simon’s newest offer.

Katherine Vyse, a spokeswoman for Brookfield, didn’t respond to a request for comment after regular business hours.

Simon said Blackstone Group LP has committed to joining its proposed takeover of General Growth. It said it still would be able to acquire General Growth even should Blackstone drop out.

Simon is willing to replace Brookfield in the recapitalization plan as an alternative to its own takeover bid, it said in yesterday’s statement.

Simon Plan

As it planned an investment in General Growth, the second- largest mall company, Simon has lined up partners ING Clarion Real Estate Securities, Taconic Capital Advisors, Oak Hill Advisors LP and Deutsche Bank AG’s RREEF unit.

“In regards to the other alternative plan, the idea of an investment in General Growth by its largest competitor is absurd,” Brookfield said yesterday before Simon revised its offer. “The value of the warrants is less than 2% of enterprise value, and therefore not meaningful to the long-term value proposition of a $30 billion company.”

Simon’s proposals are “clearly superior to other options on the table,” Benjamin Yang, an analyst at Keefe Bruyette & Woods Inc., wrote last night in a note to clients. “SPG appears to have taken the lead in the sweepstakes for GGP.”

General Growth filed the largest real estate bankruptcy in U.S. history in April 2009 after amassing $27 billion in debt making acquisitions. Its properties include New York’s South Street Seaport, Boston’s Faneuil Hall and the Grand Canal Shoppes and Fashion Show in Las Vegas.

The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net; Daniel Taub in Los Angeles at dtaub@bloomberg.net.

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