Simon shares surge despite failed General Growth deal

May 10, 2010

Simon Property Group Inc.’s decision to drop out of bidding for a major rival didn’t rattle investors in the Indianapolis company, who bid up the shares nearly 5 percent Monday morning.

The surge coincided with a market rally fueled by an agreement among European leaders to back a nearly $1 trillion plan to contain a spreading debt crisis. But Simon’s rise also suggested investors believe the company will be just fine without General Growth Properties Inc., the Chicago-based rival Simon had been pursuing for months.

Simon shares late Monday morning were trading at $89.95 apiece, up $4.27.

The company on late Friday afternoon withdrew its $6.5 billion bid to acquire General Growth out of bankruptcy court, saying a court ruling made the deal too expensive.

Simon’s decision clears the way for General Growth to emerge from Chapter 11 bankruptcy protection as a standalone company with $6.5 billion in backing from an investor group led by Canadian property manager Brookfield Asset Management Inc.

That deal,  approved by U.S. bankruptcy court Judge Allan Gropper in New York, included a provision that would give the Brookfield consortium stock warrants worth potentially more than $500 million if General Growth went with another bidder.

Simon Property said that would make any acquisition too costly, and abandoned the offer it made Thursday of $6.5 billion, or $20 a share. That offer had topped one for $18.25 a share just days earlier.

"We cannot reach a mutually beneficial transaction," Simon CEO David Simon said in a statement Friday.

He also blasted the General Growth board of directors, 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 late Friday 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.

The company said it will continue to consider offers between now and early July, when it intends to select the best plan to emerge from bankruptcy.

Simon is the largest U.S. shopping mall owner, with more than 380 properties. General Growth is the second-largest mall operator with more than 200 centers in 43 states, including Faneuil Hall in Boston, the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.

General Growth seized on cheap lending to bankroll acquisitions at the height of the real estate boom, but racked up $27 billion in debt by the time it sought bankruptcy protection in April 2009.

It has since restructured nearly all of its secured debt and is now in a position to emerge from bankruptcy and pay off creditors in full.

Under terms of the Brookfield deal, General Growth would exit bankruptcy as two separate companies. The new General Growth Properties would own traditional shopping mall properties. The second company, called General Growth Opportunities, would own a diverse asset portfolio.

In addition to Brookfield, the main financial backers include Fairholme Capital Management and Pershing Square Capital Management Inc. Fairholme is one of General Growth's largest unsecured creditors, while Pershing Square is one of its largest shareholders.



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