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GGP Wins Court Approval of Brookfield Bid; Simon Withdraws

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Updated at 4:13

It looks like General Growth Properties will remain independent. A bankruptcy court today approved a Brookfield Asset Management-led recapitalization plan for the second largest operator of regional malls in the U.S. Almost immediately after that hearing was announced, Simon issued a press release saying it has withdrawn both its acquisition and recapitalization offers.

U.S. Bankruptcy Judge Allan Gropper in Manhattan today approved General Growth's plan to give Brookfield, Fairholme Capital Management LLC and Pershing Square Capital Management LP warrants to buy stock in the reorganized company in exchange for funding. Testimony at today's hearing focused on whether the warrants might chill bidding.

General Growth, based in Chicago, said the Brookfield-led bid is intended to serve as a so-called stalking-horse for higher offers or the raising of money from capital markets. Simon said the warrants would dilute General Growth's value and the Indianapolis-based company would stop bidding if Gropper approved their issue.

Update: The Wall Street Journal's recap of the hearing provides a few more details. Importantly, it notes that Simon is not prevented from continuing to make bids for General Growth. But all indications seem to be that Simon will drop its pursuit of General Growth.

However, little precludes Simon from rejoining the bidding in coming months, because Friday's ruling simply establishes Brookfield's bid as the front-runner rather than the victor. General Growth executives and attorneys say the board chose the Brookfield offer as an "insurance policy" to have in place for several months in case the company eventually accepts a buyout bid from Simon that is later derailed by antitrust regulators.

"I certainly hope your client would reconsider its position, but that's entirely its call," Judge Gropper told Simon's lawyers. With "the way the process is intended to unfold, the [approval] of the debtor's motion today is not intended to cut off any opportunity to make an offer for the company. It's intended to continue that" until a final winning bid is selected in early July.

Text of Simon's release after the jump.

Simon Property Group Withdraws Acquisition and Recapitalization Proposals for General Growth Properties

SPG Will Not Participate in Bidding Process in GGP Bankruptcy

INDIANAPOLIS--(BUSINESS WIRE)--Simon Property Group, Inc. (NYSE: SPG) (“SPG”) today announced that it has withdrawn its fully financed acquisition and recapitalization proposals for General Growth Properties, Inc. (NYSE: GGP) (“GGP”).

David Simon, Chairman and Chief Executive Officer, said, “GGP's decision to move forward with the latest Brookfield-sponsored change of control recapitalization, without giving due consideration to SPG's proposals, is a truly unfortunate result for all GGP stakeholders. The transaction approved today values GGP at a minimum of $5.00 less per share than SPG's $20.00 per share offer, when accounting for the highly expensive and dilutive warrants to be issued to the Brookfield consortium.”

Simon continued: “We are disappointed that the GGP board hastily decided in less than 24 hours to accept substantially less value, rather than take more time to fully assess the benefits of SPG's offer and enter into negotiations to make this value available to GGP shareholders. In addition, SPG's recapitalization proposal offered the certainty GGP desired along with an $11.00 per share value, which is also substantially higher than what GGP shareholders will receive under the plan approved today, after taking the highly expensive and dilutive warrants into account.”

Simon added: “For many months, SPG has tried to work collaboratively and productively with GGP to bring our proposals to fruition. SPG has been highly flexible, making numerous changes to its proposals in response to requests from GGP, its stakeholders and its advisors. GGP's decision to proceed with a transaction that transfers hundreds of millions of dollars in value to the Brookfield consortium has caused us to conclude that we cannot reach a mutually beneficial transaction with GGP. As a result, it is in SPG's best interests to withdraw our proposals and decline to participate in the bidding process in the GGP bankruptcy.”

Simon concluded, “I am confident in our ability to grow the business as we have done historically. We will continue to focus on our business and evaluate other opportunities in the marketplace as we always have: prudently, in a disciplined manner, and in the best interests of our shareholders.”

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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