Simon Property Group Inc, the largest US shopping mall owner, made a US$10 billion hostile bid on Tuesday to acquire ailing rival General Growth Properties.
The acquisition would allow General Growth, the No. 2 owner of shopping centers, to emerge from bankruptcy protection. General Growth filed for bankruptcy last year after buckling under the weight of billions in debt it racked up during a massive expansion effort fueled by cheap credit.
The move is Simon’s second attempt at a major acquisition in three months. In December, Simon offered US$700 million in cash and stock to buy more than 60 outlet shopping centers from another competitor, Prime Outlets Acquisition Co. The deal is pending.
Simon is using its comfortable cash cushion and credit lines to take advantage of falling commercial property values, which are off 40 percent from their peak in 2007. And General Growth has some prized centers, including the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.
PROPERTIES
Simon has been able to weather the economic downturn despite rising retail vacancy rates in the double-digits in some cities. The Indianapolis, Indiana-based company popularized the so-called lifestyle center mall design that turned malls into neighborhood-like communities. Simon owns more than 380 properties, including the Houston Galleria and the Fashion Valley Mall in San Diego.
Many national retail companies have stores in regional malls like those that Simon and General Growth own. If Simon or another large mall operator were to acquire General Growth’s centers, that could give it more muscle to negotiate for higher rental rates with retailers.
Under the terms of the offer, General Growth’s unsecured creditors would get US$7 billion, which would pay them in full.
Shareholders would receive US$3 billion, or US$6 a share in cash and US$3 a share in other assets. The offer, however, might be amended so shareholders could receive Simon stock instead of cash.
“Simon’s offer provides the best possible outcome for all General Growth stakeholders,” David Simon, chairman and CEO, said in a statement.
FORMAL OFFER
Simon disclosed its offer after General Growth’s board failed to respond to a formal offer it made last week.
In a letter to General Growth’s board dated on Feb. 8, Simon spelled out its offer and argued shareholders stand to gain more from a takeover than if General Growth emerged from bankruptcy as a standalone company, or accepted a rival bid.
“We are convinced that a transaction with Simon is superior to any proposal you may be considering,” Simon wrote in the letter, adding the proposal was not open-ended.
A spokesman for Chicago-based General Growth had no immediate comment.
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