IBJNews

Simon biding its time after failed bid for rival

Back to TopCommentsE-mailPrintBookmark and Share

Simon Property Group Inc. withdrew separate offers to either acquire General Growth Properties or finance its exit from bankruptcy after a New York judge endorsed a rival plan that allows the nation’s No. 2 mall owner to stay independent.

So where does that leave Simon and the $6.8 billion war chest it has amassed to make a run at its nearest shopping mall rival?

The Indianapolis-based company probably will pay off debt and wait patiently for the next opportunity, which could include buying a handful of individual General Growth malls after it emerges from bankruptcy, said analyst Rich Moore, who follows Simon from the Cleveland office of RBC Capital Markets.

Simon couldn’t be much better positioned, with $3.6 billion in cash and $3.2 billion more available through a line of credit. But now that a wholesale acquisition of General Growth appears off the table, Simon probably will look to opportunistic smaller deals and to make a meaningful dent in almost $2 billion of upcoming debt maturities.

“There’s this notion going around that they have to do something very quickly but that is absolutely incorrect,” Moore said. “I would be more leery if they went to do something else right away.”
 

Simon Simon

CEO David Simon has offered few hints so far about what he might do next. He said in a statement after the bid withdrawal on May 7 that the company will find other ways to grow.

“We will continue to focus on our business and evaluate other opportunities in the marketplace as we always have: prudently, in a disciplined manner, and in the best interests of our shareholders,” he wrote.

The real estate investment trust has grown rapidly since Simon took over as CEO in 1995, primarily through acquisitions. But General Growth is not the first deal that hit a wall. The Taubman family in 2002 used a special class of stock to fight off Simon’s $1.5 billion offer for Michigan-based Taubman Centers Inc.

If the situation with General Growth were a straight-up bidding process, Simon would have won hands-down, Moore said. The company put together a superior offer, but General Growth’s Bucksbaum family snubbed it.

“If they thought bidding at a higher level would get them the assets, they probably would,” Moore said. “In REIT land, if you don’t want to sell you don’t have to—there’s not much Simon can do with the Bucksbaum family wanting control and having the ear of the court.”

It isn’t yet clear how much Simon spent in its pursuit of General Growth, but the number will be minor considering the company’s size and likely will be offset in part by gains in General Growth bonds Simon acquired as it was exploring a bid, Moore said.

If Simon were to acquire select GGP properties, that company’s Las Vegas portfolio including Fashion Show would make sense. Simon already owns the top-performing mall on the Strip, The Forum Shops at Caesars Palace.

Simon’s strategy ultimately will depend on whether a retail turnaround continues to take hold. But even if it doesn’t, Simon could get a second shot at picking up distressed mall assets.

“I wouldn’t say Simon is under significant pressure to use their capital, but it is expected that it will deploy it, sooner rather than later, and definitely within the next year,” Jason Lail, a senior real estate analyst for Charlottesville, Va.-based SNL Financial, told the magazine Retail Traffic.

Technically, Simon could still make another bid for General Growth. But it had promised to walk away if the bankruptcy court approved the issuance of warrants worth more than $500 million to an investment group led by Canadian property manager Brookfield Asset Management Inc.—a move that would have made a Simon acquisition pricier.

simonThat deal, approved May 7 by U.S. bankruptcy court Judge Allan Gropper in New York, cleared the way for General Growth to emerge from Chapter 11 bankruptcy protection as a stand-alone company. Simon’s final cash offer was for $6.5 billion, or $20 a share.

David Simon blasted the General Growth board, saying it “hastily decided in less than 24 hours to accept substantially less value.”

Simon said the Brookfield-led deal values General Growth at least $5 a share less than its own offer when one accounts for the warrants.

General Growth CEO Adam Metz said the Brookfield-led plan serves as an “insurance policy” for General Growth because it gives the company the funds it needs to exit bankruptcy while at the same time allowing it to pursue other potential offers.

Securities analysts including Richard Milligan of St. Petersburg, Fla.-based Raymond James & Associates Inc. had anticipated General Growth might attempt to block a Simon takeover, even if such a deal offered more value for shareholders.

“Although Simon’s current offer is economically superior on paper, it is difficult to predict how much weight will be placed on anti-trust and independence issues,” Milligan wrote in a May 3 report. Simon had proposed to limit its voting power to address concerns that the purchase would give it too much control over the shopping mall industry.

“We believe Simon has mitigated those issues with voting restrictions, but General Growth will certainly look to use those issues as a justification for not taking the highest offer—with the argument the highest isn’t necessarily the best.”

Milligan believes Simon will be fine without General Growth.

“We consider Simon the ‘best in class’ and expect the company to outperform its REIT peers in the next several quarters,” he wrote.•

ADVERTISEMENT

  • CIB Solution
    How about purchasing the Circle Center Mall in Indianapolis and take the insolvent CIB off the hook for the debt they cant afford to pay back.

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. A Tilted Kilt at a water park themed hotel? Who planned that one? I guess the Dad's need something to do while the kids are on the water slides.

  2. Don't come down on the fair for offering drinks. This is a craft and certainly one that belongs in agriculture due to ingredients. And for those worrying about how much you can drink. I'm sure it's more to do with liability than anything else. They don't want people suing for being over served. If you want a buzz, do a little pre-drinking before you go.

  3. I don't drink but go into this "controlled area" so my friend can drink. They have their 3 drink limit and then I give my friend my 3 drink limit. How is the fair going to control this very likely situation????

  4. I feel the conditions of the alcohol sales are a bit heavy handed, but you need to realize this is the first year in quite some time that beer & wine will be sold at the fair. They're starting off slowly to get a gauge on how it will perform this year - I would assume if everything goes fine that they relax some of the limits in the next year or couple of years. That said, I think requiring the consumption of alcohol to only occur in the beer tent is a bit much. That is going to be an awkward situation for those with minors - "Honey, I'm getting a beer... Ok, sure go ahead... Alright see you in just a min- half an hour."

  5. This might be an effort on the part of the State Fair Board to manage the risk until they get a better feel for it. However, the blanket notion that alcohol should not be served at "family oriented" events is perhaps an oversimplification. and not too realistic. For 15 years, I was a volunteer at the Indianapolis Air Show, which was as family oriented an event as it gets. We sold beer donated by Monarch Beverage Company and served by licensed and trained employees of United Package Liquors who were unpaid volunteers. And where did that money go? To central Indiana children's charities, including Riley Hospital for Children! It's all about managing the risk.

ADVERTISEMENT