Mergers & Acquisitions and Commercial Real Estate and Public Companies and Simon Property Group and Deals and Real Estate & Retail

General Growth snubs initial offer from rival Simon

February 17, 2010

Simon Property Group Inc. will have to wait in line with other potential bidders and raise its offer if it wants to land bankrupt rival General Growth Properties Inc., the Chicago-based company said in a letter late Tuesday.

Indianapolis-based Simon has offered $10 billion to acquire General Growth and take on another $21 billion in secured debt. The offer includes $7 billion to pay unsecured creditors and another $3 billion for common shareholders.

Shares in General Growth rallied almost 28 percent Tuesday, to $12.02, above the Simon offer valued at about $9 per share, as investors anticipated a higher offer. The shares had fallen as low as 32 cents after General Growth filed for the biggest real-estate bankruptcy in U.S. history in April. It amassed $27 billion in debt during an acquisition spree. The company reported $3.4 billion in annual revenue.

General Growth said in its letter that Simon's bid is "not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11."

The letter, from General Growth CEO Adam Metz, did not rule out a tie-up with Simon and actually invited Simon to participate along with other bidders.

"We will be providing detailed information on the company, including a confidential information memorandum, financial projections, and asset level information to participants," Metz wrote. "As we are committed to fully exploring all potential options available to the company, we would like to include Simon as part of this process. We believe the information we would provide to you as part of this process will enable you to better understand the company, get to a higher valuation, and provide a fully documented offer."

The combination of Simon and GGP would own 525 malls with 450 million square feet of retail space. It would give Simon high-performing properties it has long coveted, including Fashion Show in Las Vegas, Water Tower Place in Chicago, South Street Seaport in New York and Faneuil Hall Marketplace in Boston.

Total domination of the U.S. shopping mall business, and the corresponding leverage with retail tenants, has been CEO David Simon’s goal since he took over the company in 1995. If he lands General Growth, call it mission accomplished.

Among the other potential bidders for GGP is Canada-based Brookfield Asset Management Inc., which has offered to invest capital so that General Growth could emerge from bankruptcy.

Activist investor Bill Ackman, whose Pershing Square Capital Management owns about 25 percent of General Growth, has said he believes the shares are worth a minimum of $24 apiece.

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