SPG + GGP? NO, Why? FTC $$

• Posted by ToddSullivan
• on February 26th, 2010

Rare late Friday night post but wanted to get this out to soak in over the weekend

Forget everything that has been said up until now regarding Simon (SPG) property buying General Growth (GGWPQ) and whether or not their deal is better than Brookfield Asset’s (BAM) offer.

Like we have been saying since early December of last year, Brookfield has the inside edge (FTC reasoning given here).

Now we have proof.

Reuters Reports:

Gap Inc. was contacted by the Federal Trade Commission about Simon Property Group Inc.’s proposed acquisition of Prime Outlets Acquisition Co.

“We are aware of the FTC’s inquiry into the proposed Simon acquisition of Prime Outlets and we are responding to its inquiries,” Louise Callagy, a spokeswoman for Gap, the San Francisco-based clothing retailer, said in a telephone interview today.

Simon, the largest U.S. mall owner, agreed in December to buy Prime Outlets from Lightstone Group for $2.33 billion including debt. The deal would give Indianapolis-based Simon an additional 22 retail outlet centers, increasing its total to more than 60. Simon also is trying to buy bankrupt General Growth Properties Inc., its biggest rival. General Growth rejected Simon’s unsolicited bid Feb. 16, saying the $10 billion offer was too low.

Does anyone here really think if a 22 retail Outlet center is coming under FTC scrutiny that a 200 mall deal would not garner a colonoscopy type examination? Do they?

The Simon deal faces incredible hurdles folks. There is no way the FTC is going to let this go without massive mall divestitures from the GGP/SPG portfolio. If they decide to require this before GGP emerges from Chapter 11, the emergence will drag out indefinitely which means the unsecured creditors, who think they are going to be paid faster under the SPG plan aren’t going to see anything for a long time.

Does anyone out there think that once the FTC starts digging and requiring mall divestitures that SPG is not going to come back at GGP and want the purchase price renegotiated?

The BAM deal will sail through the FTC and close far faster than anything SPG proposed for the whole company.

I hope this is the line GGP takes at Monday’s hearing to argue for an extension of exclusivity from the Judge. The SPG deal, while attractive to the unsecured on paper, is dead on arrival in real life. It defies logic to assume the FTCwill lok into a 22 mall deal but not a 200 mall one that creates, as I said in early December “a colossus”. The BAM deal, while a bit scary to the unsecureds, is the far better plan for ALL stakeholders as it provides superior recovery for them.

Because of the uncertainty, and based on the progress made to date, an extension is in the best interest of all parties to work through these issues. All of this does not even take into account anything Westfield, the Australian mall owner may do with their $8B burning as hole in their pocket.

Now, maybe SPG bring in Blackstone (BX) as a partner and does a JV with them for a large number of the mall and takes a minority interest in an attempt to avoid the FTC. OK, fine, but we still need time to sort these issues out and opening the floodgates now on what has been a very successful process just does not make sense and Judge Gropper has been nothing if not extremely pragmatic up until this point, no reason to expect a change.

Either way, March 3rd looks like a doozy..

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