Mergers & Acquisitions and Simon Property Group and 2010 Year in Review

Simon loses battle for General Growth

December 24, 2010
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David Simon has led Simon Property Group since 1995. (file photo)

Just as shoppers began spending more cash at Simon Property Group Inc. malls, the Indianapolis real estate giant tried to open its own wallet for three huge deals—to mixed results.

The company failed in May to land its ultimate prize, withdrawing a $6.5 billion bid for Chicago’s General Growth Properties after the rival mall owner snubbed repeated advances.

Simon in August closed on a $2.3 billion acquisition of about 20 outlet malls from Baltimore-based Prime Outlets Acquisition after forging an agreement with the Federal Trade Commission to give up control of some malls where Simon would have cornered the outlet-mall market.

By December, the dominant U.S. mall player was in hot pursuit of the largest mall operator in the United Kingdom, although London-based Capital Shopping Centres Group also was playing hard-to-get.

Capital rejected a $4.6 billion takeover bid from Simon on Dec. 15, but analysts were expecting a sweetened offer.

In rejecting Simon’s offer, London-based Capital Shopping Centres Group said the cash bid “very substantially undervalues the company and its prospects.”

Capital Shopping owns four of the U.K.’s 10 biggest malls. The offer from Simon was conditioned on Capital’s abandoning an expensive acquisition of Trafford Centre Mall in Manchester in the United Kingdom.

Reticence by a Simon acquisition target was nothing new.

The company had pursued General Growth, the second-biggest U.S. mall owner, for three months after being rebuffed. General Growth, in bankruptcy at the time, favored a rival proposal to keep it independent and proceeded with that deal.

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.

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

Analysts at the time predicted Simon would pay off debt and wait patiently for the next opportunity.•

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