Simon Property Group Inc. made a new offer for rival General Growth Properties Inc., pledging to invest $2.5 billion in a reorganization and match the terms of a bankruptcy exit plan led by Brookfield Asset Management Inc.
The proposal includes a $1 billion co-investment commitment by hedge fund Paulson & Co., Indianapolis-based Simon said in a statement Wednesday. Simon CEO David Simon said his offer is better for General Growth shareholders than the Brookfield plan because it doesn’t include the issuance of warrants that may reduce value.
Simon, the largest U.S. mall owner, said it’s still willing to buy General Growth, the second-biggest, outright. General Growth, based in Chicago, turned down a $10 billion takeover bid by Simon in February, saying it was too low. The companies have been in discussions since, unable to come to an agreement over how much risk each should take should there be any antitrust problems from a takeover, said a person familiar with the talks.
“David Simon is saying, ‘Fine, if you’re not going to negotiate in good faith, I’m going to do the same deal but I’ll do it at better terms,’” David Fick, an analyst with Stifel Nicolaus & Co. in Baltimore, said. “It’s all posturing. You still will have the same outcome. It will be bought by Simon at the end of the day.”
General Growth shares fell 14 cents, to $16.01 each in afternoon trading. Simon shares slipped 45 cents, to $87.73.
General Growth, after turning down Simon initial offer, instead announced plans to reorganize under a $6.55 billion plan by Brookfield, Pershing Square Capital Management LP and Fairholme Capital Management LLC. General Growth would emerge from bankruptcy as an independent company under both the Brookfield plan and Simon’s new offer.
Simon would buy 250 million shares at $10 each under the new offer, which it said is the same amount Toronto-based Brookfield would acquire under its plan, and at the same price. It would also agree to the same terms as Brookfield’s proposal for the recapitalization of the company and planned spinoff of a new entity, David Simon wrote in a letter to General Growth CEO Adam Metz that was included in the statement.
The removal of warrants would provide shareholders a benefit of at least $895 million, or $2.75 a share, Simon said.
General Growth’s shareholders “would accordingly not suffer the dilution contemplated by the Brookfield investment, and their ongoing interest in GGP would be substantially more valuable,” Simon said in the letter.
David Keating, a spokesman for General Growth, declined to comment. General Growth lawyer Gary Holtzer, and Michael Stamer, a lawyer for General Growth creditors, didn’t return calls for comment.
“GGP has always been a premium shopping mall operator,” New York-based Paulson & Co. said in a statement. “Paulson & Co.’s $1 billion investment as part of Simon Property Group’s proposal will allow GGP to deleverage its balance sheet and exit bankruptcy with the right capital structure to pursue its long-term strategy.”
imon said it’s willing to partner with Fairholme and Pershing Square as long as they forego the warrants they would receive under their agreement with Brookfield and General Growth. There also are “a number of alternative sources of capital” who are interested in partnering on a General Growth investment instead, David Simon said.
Pershing Square, led by William Ackman, is General Growth’s biggest equity investor, with a 25-percent economic interest, including 7.5 percent of its shares. Bruce Berkowitz’s Fairholme is the largest creditor, with about $1.83 billion of General Growth’s unsecured debt, Berkowitz and Ackman said in a letter filed March 9 with the U.S. Securities & Exchange Commission.
Katherine Vyse, a spokeswoman for Brookfield, declined to comment. Ackman also declined to comment. Hedda Nadler, a spokeswoman for Fairholme, didn’t return a call seeking comment.
General Growth filed the largest real estate bankruptcy in U.S. history last April after amassing $27 billion in debt making acquisitions. Its properties include New York’s South Street Seaport and Boston’s Faneuil Hall.