Simon Pledges $6.5B in GGP Counter Offer

According to the letter, Simon has offered to acquire 250 million shares of common stock in GGP for $2.5 billion in the aggregate, or $10 per share, the same amount as Brookfield would acquire, at the same price. Simon said he would also enter into agreements on the same basis as Brookfield with respect to the recapitalization of GGP and the planned spin-off of a second distressed-asset class. Simon also said Paulson & Co. Inc. is prepared to co-invest $1 billion in connection with this plan. Simon said it expects to get other investor assistance for another $3 billion, and until those investors are named, the company will backstop that amount in its recent offer.

Simon also said his offer would not be fee-contingent, saving GGP shareholders almost $900 million. Simon said that his offer does not include any warrants or similar payment or fees in respect of its commitment to invest in GGP, either on an interim basis, or as part of the post-reorganization consideration to be issued to Simon in respect of its investment. "GGP's equityholders would accordingly not suffer the dilution contemplated by the Brookfield investment, and their ongoing interest in GGP would be substantially more valuable. We estimate that this benefit could be at least $895 million, or $2.75 per share based on today's share count," Simon said in the letter.

GGP's current plan includes funds provided by Brookfield Asset Management, Pershing Square Capital Management and Fairholme Capital Management. Under the terms of the current agreements, Brookfield will provide $2.6 billion, and Pershing Square and Fairholme will commit $3.9 billion of new equity capital at a value of $15 per share to facilitate GGP's emergence from bankruptcy. In addition, the trust will issue warrants for 120 million shares exercisable at $15 per share. The plan would create two companies, General Growth Properties (GGP), which would have the higher-quality assets, and General Growth Opportunities (GGO), which will own a diverse portfolio of real estate assets, including the company's master planned communities and properties such as Ward Centers in Honolulu and South Street Seaport in New York City.

Simon said that if Pershing Square and Fairholme will agree to amend their investment agreements with GGP to forego the warrants currently contemplated by those agreements, Simon would welcome them as co-investors in GGP's recapitalization. However, he said he has other alternatives. Paulson & Co. Inc. is prepared to co-invest at least $1 billion, and Simon promised to fully backstop the entire amount of such co-investment commitments, without any warrants, as well as backstopping an additional $125 million investment in GGO, similar to plans by Pershing Square and Fairholme.

"However, it is not Simon's intent to gain control of GGP pursuant to this backstop obligation," Simon said in the letter. "(We) would agree not only to seek the disposition of any shares issued with respect to its backup commitment as promptly as practicable, but also to the effective sterilization of such interest for voting and control purposes prior to such disposition. Simon's voting interest in GGP would generally be limited to 20% of the outstanding shares."

Simon also said there will be no financing condition whatsoever to close the transaction. "Simon, which has an equity market capitalization in excess of $27 billion, $3.5 billion of available cash on its balance sheet, and $3.3 billion of available borrowing capacity under its revolving credit facility, and would be fully and immediately responsible for its commitment and backstop obligations, in distinction to Brookfield, which does not seem to have yet delivered an equity commitment to the shell subsidiary with which GGP contracted and seems to be entirely free to walk away from the agreed deal," Simon said. "(Our) investment would not be contingent on any vote of Simon shareholders, and Simon will not require any commitment or other fee in respect of its equity investment commitment in the recapitalization of GGP."

GGP officials have already expressed satisfaction with its Brookfield offer, saying March 31 that the combined equity capital, along with its anticipated new $1.5-billion debt issuance--or the reinstatement of a comparable amount of existing debt--would, if approved, deliver substantially all of the cash required to fulfill the capital needs in connection with its emergence from bankruptcy. GGP officials have not been receptive to Simon's previous takeover offer, which proposed $9 per share. An official with GGP did not respond to questions about this story.