Simon Property Group has made a $10-billion offer to acquireGeneral Growth Properties of Chicago. This move would merge the toptwo retail- focused REITs in the country, creating a company withmore than 520 assets.

|

However, this is not a done deal, according to Ryan Thomas, apartner at Bass Berry & Sims PLC and an expert in mergers andacquisitions of public and private companies. Since GGP is stilltrying to pull a number of assets out of bankruptcy, Simon willneed court approval as well as the approval of secured creditorsand shareholders.

|

The creditors may be the easiest challenge. "The court willbalance the interests of all creditors and consider the feasibilityof the Simon transaction," Thomas explains. "The secured creditorsmay support the transaction, unless they see an alternate path thatenhances their collateral-or unless the Simon transaction somehowimpairs it."

|

The shareholders and board, on the other hand, are likely to bemore of a test. It is not out of the realm of possibility that theboard could reject the offer if they feel Simon is "bottom feedingwhen the stock is undervalued."

|

Thomas says, "One of General Growth's largest equity holders,Pershing Square, which happens to be an activist investor, hasrecently indicated that the company is vastly undervalued-placingits valuation significantly higher than the offer by Simon. It isalso telling that the board has apparently not engaged innegotiations with Simon, presumably reflecting either a moreoptimistic view of the residual value of the equity or confidencein a better alternative plan."

|

Recent reports indicate Pershing Square believes GGP is worth$24 to $43 per share. The Simon offer comes to $9 per GeneralGrowth share, a total of"$6 per share in cash and all of GGP'sownership interests in the master planned community assets,"according to Simon's offer letter.

|

This significant difference in perceived value could lead othercompanies, such as Brookfield Asset Management, to make acompetitive bid at a higher price. A consortium of bidders is alsoa possibility, as that will allow a number of companies to cometogether and offer a larger purchase price.

|

With the reality of competition, Thomas says, Simon is likely tobe holding back to have some leveraging power. "Simon is likelyreserving some powder and not showing all its cards."

|

But at press time, GGP played a hand that few could anticipate.The beleagured REIT rejected Simon's bid, stating that the offerwas not enough to dissuade them from attempting to emerge frombankruptcy on its own.Plus the company would like to entertainother offers. That decision infruritated a shareholder, who is nowsuing GGP for breach of fiduciary duty to obtain the most value forstakeholders.


GlobeSt.com News Hub is your link torelevant real estate and business stories from other local,regional and national publications.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.