Simon withdraws bid for General Growth

May 7, 2010

Indianapolis-based Simon Property Group Inc. has withdrawn its offer for General Growth Properties Inc. after a bankruptcy court judge approved a sale process that gives an advantage to a group lead by rival bidder Brookfield Asset Management Inc.

In a news release issued Friday afternoon, Simon CEO David Simon called General Growth’s decision to move ahead with Brookfield’s proposal “a truly unfortunate result for all GGP stakeholders.”

Earlier Friday, U.S. Bankruptcy Judge Allan Gropper approved General Growth’s plan to give Brookfield, Fairholme Capital Management LLC and Pershing Square Capital Management LP warrants to buy stock in the reorganized company in exchange for funding.

General Growth, based in Chicago, said the Brookfield-led bid is intended to serve as a so-called stalking-horse for higher offers or the raising of money from capital markets. Lawyers for Simon said the warrants would dilute General Growth’s value and warned the company would withdraw from bidding if the judge approved the Brookfield plan, partly because the stock warrants that accompany it would make Simon’s buyout more expensive.

The Brookfield-backed proposal is worth $7 billion in equity, and establishes a backstop for a loan of $1.5 billion. General Growth lawyer Marcia Goldstein said it will allow the company to choose a final best offer and file its Chapter 11 reorganization plan by mid-July.

Simon said the Brookfield transaction values General Growth at least $5 per share lower than his company’s final $20-per-share offer—made Thursday—when the warrants are factored in.

"We are disappointed that the GGP board hastily decided in less than 24 hours to accept substantially less value, rather than take more time to fully assess the benefits of [Simon’s] offer,” David Simon said in the statement.

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 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.


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