Public Tiff Between Simon and GGP Continues with Statements on New $2.5B Bid

February 26, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Charlie Brewer

It all seemed to have started out innocently enough, with Indianapolis-headquartered Simon Property Group Inc.’s $10 billion cash offer on February 8 to buy beleaguered Chicago-based General Growth Properties Inc.

But now it’s turned into a written war of words, of sorts, with letters flying between CEOs of the retail REITs on such issues as the non-disclosure agreement and bankrupt GGP’s process for exploring alternatives. The most recent issue that has set the statements to flight is Toronto, Ont.-based real estate investor and asset manager Brookfield Asset Management Inc.’s competing offer involving $2.5 billion in cash; an offer that GGP finds attractive.

Brookfield’s proposal calls for the company to invest $2.5 billion at $10 per share for new GGP common stock, and as much as $125 million at $5.00 per share for common stock of GGO, a new entity that will own designated non-core GGP assets, including GGP’s master-planned communities. GGP lauds the proposal, noting that it would leave the company with enough liquidity to support its emergence from bankruptcy and a platform for raising as much as $5.8 billion in capital via various means, including the opportunity to rely on Brookfield’s tight knit relationships with capital sources around the world.

“The Brookfield-sponsored recapitalization–coupled with the more than $13 billion of restructured debt, our compelling scale as the second-largest regional mall owner, our fortress assets and a business plan that focuses on further deleveraging the balance sheet and building liquidity–provides a strong financial foundation for the future,” Adam Metz, CEO of GGP, wrote in a statement announcing GGP had reached an agreement in principle with Brookfield.

GGP is talking up the Brookfield proposal, but Simon is not impressed–and not happy.

“The proposed recapitalization amounts to a risky equity play on the backs of its unsecured creditors,” Simon noted in a statement in response to GGP’s announcement of the Brookfield offer. “While continuing to block the immediate and certain 100% cash recovery provided by Simon’s offer, General Growth has preempted its own self-proclaimed ‘process’ in favor of a highly speculative and risky plan to attempt to raise $5.8 billion of new capital in today’s uncertain markets. Simon is providing $10 billion of real value–$3 billion to shareholders as well as $7 billion to creditors–as compared to a complex piece of financial engineering that is so highly conditional as to be illusory.”

Neither GGP nor Brookfield has released a response to Simon’s assessment of the situation–yet. Apparently, Simon believes it is still in the running. “The offer is subject to confirmatory due diligence and the negotiation and execution of a definitive transaction agreement, as well as required bankruptcy court and creditor approvals,” Simon officials documented in the company’s annual report submitted to the SEC on February 25. “As of the filing of this report, no transaction has occurred.”

And the door remains open for bids from other potential buyers. The winner will get its hands on GGP’s ownership interest and management position in over 200 regional shopping malls accounting for approximately 200 million square feet of retail space across 43 states.