Simon's $6.5B Deal Now Worth It, Say Analysts

Shucking its $9 per share previous takeover offer, Simon has come back to the table touting a new plan that basically promises to match all funds brought to the table by Brookfield, Pershing Square Capital Management and Fairholme Capital Management. The Brookfield plan was presented at a GGP bankruptcy court hearing, and the trust set a late April deadline date to consider other offers.

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. Simon says his firm will buy up 250 million GGP shares at $10 per share, for $2.5 billion. Joined by another $1 billion from Paulson & Co. Inc., Simon says he can find another $3 billion of investment to match Brookfield's plan. Pershing Square and Fairholme are invited to move their support to the Simon camp, he says.

The main difference now between the Brookfield and Simon plans, analysts say, is that Simon has promised to forego any warrants or similar payments or fees in respect of its commitment to invest in GGP. These 120 million warrant purchase rights exist in the Brookfield plan, diluting the existing shareholders value, Simon says. He says he estimates his counteroffer could save GGP shareholders about $2.75 per share, or about $895 million.

Following the Simon announcement, a few analysts such as Cedrik Lachance with Green Street and Jeffrey Spector with Bank of America-Merrill Lynch offered their agreement."In our opinion, due to the dilution of the warrants, we believe (Simon's) latest bid is superior to Brookfield's," said Spector. Both firms seek to be granted "stalking horse" status in any future bankruptcy ruling, Spector said.

Though there were anti-trust issues in the former Simon takeover offer, those issues were side-stepped, for now, with a reorganization structure, Spector said. "It has been suggested that Simon could still be interested in acquiring all of General Growth, and might pursue the route later in the process," according to Spector's report. However, in his letter, Simon said it is not his company's intention to gain control over GGP. "Simon's voting interest in GGP would generally be limited to 20% of the outstanding shares," Simon said.

Simon said that his firm, 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, is not concerned about funding the second offer. Simon's stock price hit $88.98 during Wednesday trading, a price the company hasn't seen since September 2008, before closing at $87.95.