$$ Here Is The “Catch” In Simon’s Bid

• Posted by ToddSullivan
• on May 5th, 2010

this kills the offer for me….

From the WSJ:

As bankrupt mall owner General Growth Properties Inc. reviews a $5.8 billion buyout offer from rival Simon Property Group Inc., one question looms: How much property is Simon willing to shed to close the deal?

Simon’s previous efforts to strike a deal have been stymied by General Growth’s concerns that an antitrust review by federal regulators would derail the agreement. Simon is the largest U.S. retail landlord with 321 properties, and General Growth is the second largest with 204.

In its offer made Sunday, Simon committed to divest up to 15 million square feet, roughly 35 to 40 malls, if regulators require it. But if regulators ask for more, Simon could walk from the deal. Earlier, Simon had offered to divest up to 10 million square feet.

The catch this time is that Simon has proposed that it be free to abandon the deal if the malls targeted for divestiture have average sales per square foot of $400 or more annually, a reduction from the $450 ceiling Simon proposed in earlier offers. Simon representatives said that provision is negotiable. But the concern for General Growth is that limit is likely to be exceeded because annual sales of General Growth’s 204 malls already average $420 a square foot.

The essentially means SPG could, get their offer chosen by GGP, effectively ending the bids of Brookfield/Fairholme/Pershing and then walk away without penalty if they do not like the FTC’s reaction to it.

Unacceptable. One has to seriously doubt GGP has $15B worth of malls with sales per sq. foot below $400. This raises the now more serious question of SPG’s true motives.

We know based on BAM’s history they do not engage in bidding wars for assets, it isn’t their MO. That being said I do believe they will walk if the SPG plan is chosen. IF that happens and the FTC dives into the SPG plan and then they walk, GGP is now without suitors and will then be at the mercy of the market to raise money for emergence. Suffice it to say shareholders will bear the brunt of any value destruction.

This then leaves SPG’s largest competitor effectively crippled vs the now very strong state it looks to emerge from Chapter 11 in. In that scenario, GGP might be forced to divest assets to raise funds for emergence and SPG would then be able to pick and choose the assets it wants at potentially far better prices than now.

This scenario has been insinuated be fore but lacking anything to back it, I gave it little credence. BUT, now that we are getting details on the increasingly lax “walk away” metrics SPG wants in the deal, one has to really begin to wonder….

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