20 February 2010

Firms Lining Up for a Piece of General Growth Properties

DS News

The bankrupt commercial property developer and shopping mall manager General Growth Properties (GGP) has become a hot commodity, with firms lining up to get a piece of the Chicago-based company.

On Tuesday, the nation’s largest mall-operator, Simon Property Group, Inc. made public a $10 billion unsolicited bid to acquire the rival GGP – a deal that would have pulled the company out of bankruptcy. After meeting with General Growth executives the week before and receiving no communication since, Simon’s CEO sent a pointed letter to the company’s board of directors and published it to the masses.

Having received no “indication that you are prepared to enter into serious discussions,” David Simon, chief of Simon Property, wrote to GGP that his intention was “to make our offer available to your shareholders and creditors.”

The deal was backed by GGP’s committee of unsecured creditors and would have paid them off in full, as well as provided partial debt recovery to private equity bondholders, with $7 billion of the total offering. The other $3 billion would have gone to shareholders, equaling about $9 a share. But according to Bloomberg News, it was a lowball bid as far as shareholders were concerned, since fund manager William Ackman of Pershing Square Capital Management LP estimated in December that the stock was worth $24 to $43, although shares have been trading around the $9 mark until shooting up 28 percent after Simon’s offer.

General Growth fired back a response to Simon on Wednesday, which it also made public, saying that the rival firm’s interest was “not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the company’s stakeholders.”

Simon’s offer came just a week before GGP’s scheduled bankruptcy court hearing, in which the company is planning to request additional time to submit its own plan for coming out of bankruptcy.

But General Growth also indicated in the letter that in addition to a stand-alone restructuring, it was also considering potential business combinations, and invited Simon to participate in the process – leaving the door open for a possible buy-out, and fueling speculation about other property management firms that may soon come knocking.

The Wall Street Journal says GGP has been in talks with Canadian real estate investor Brookfield Asset Management, which recently purchased $1 billion of General Growth’s debt in a move that suggested to some analysts that the company was jockeying for control of some of the bankrupt company’s properties.

The Journal also throws Vornado Realty Trust into the mix, a real estate investment trust (REIT) that has been raising cash to scoop up distressed commercial real estate assets.

The Sydney, Australia-based shopping center owner Westfield Group also has its eye on GGP, according to Bloomberg. Westfield has stakes in 55 malls in the United States. The news agency quoted the company’s managing director as saying Westfield was always on the lookout for acquisition opportunities and is “watching the situation” at GGP.

Bloomberg called General Growth’s bankruptcy filing last April “the biggest real estate bankruptcy in U.S. history,” after the company racked up $27 billion in debt in a property acquisition spree.

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