Judge clears General Growth bankruptcy exit plan

[May 08, 2010]  LOS ANGELES (AP) -- Simon Property Group Inc. on Friday withdrew its $6.5 billion bid to acquire rival shopping mall owner General Growth Properties Inc., following a bankruptcy court ruling that Simon said would have made the deal too expensive.

The move ends a monthslong campaign by the nation's largest shopping mall owner to take over its closest competitor. It was an unlikely bidding war for a company that just over a year ago had the dubious honor of being the biggest real estate bankruptcy case in U.S. history.

The plan approved by U.S. Bankruptcy Court Judge Allan Gropper in New York would enable General Growth to emerge from Chapter 11 bankruptcy protection as a standalone company. Under the plan, General Growth would receive $6.5 billion from an investor group led by Canadian property manager Brookfield Asset Management Inc.

But the deal also included a provision that would give the Brookfield consortium stock warrants worth potentially more than $500 million if General Growth went with another bidder.

Simon Property said that would make any acquisition too costly, and abandoned its latest offer Thursday of $6.5 billion, or $20 a share. That offer had topped one for $18.25 a share just days earlier.

"We cannot reach a mutually beneficial transaction," Simon Property Group Chairman and CEO David Simon said Friday.

He also blasted the General Growth board of directors, saying it "hastily decided in less than 24 hours to accept substantially less value."

Simon said the Brookfield-led deal values General Growth at least $5 a share less than its own offer when one accounts for the warrants.

General Growth didn't immediately comment on Simon's decision to withdraw its takeover bid.

CEO Adam Metz said late Friday the Brookfield-led plan serves as an "insurance policy" for General Growth because it gives the company the funds it needs to exit bankruptcy while at the same time allowing it to pursue other potential offers.

The company said it will continue to consider offers between now and early July, when it intends to select the best plan to emerge from bankruptcy.

Simon is the largest U.S. shopping mall owner. It popularized the lifestyle center mall design that turned malls into neighborhood-like communities. It owns more than 380 properties, including the Houston Galleria and the Fashion Valley Mall in San Diego.

Chicago-based General Growth is the nation's second-largest mall operator with more than 200 centers in 43 states, including Faneuil Hall in Boston, the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.

The company seized on cheap lending to bankroll acquisitions at the height of the real estate boom, but racked up $27 billion in debt by the time it sought bankruptcy protection in April 2009.

It has since restructured nearly all of its secured debt and is now in a position to emerge from bankruptcy and pay off creditors in full.

Under terms of Friday's deal, General Growth would exit bankruptcy as two separate companies. The new General Growth Properties would own traditional shopping mall properties. The second company, called General Growth Opportunities, would own a diverse asset portfolio.

In addition to Brookfield, the main financial backers include Fairholme Capital Management and Pershing Square Capital Management Inc. Fairholme is one of General Growth's largest unsecured creditors, while Pershing Square is one of its largest shareholders.

General Growth shares tumbled $1.77, or more than 11 percent, to $14.07 on Friday. The stock added 3 cents in aftermarket trading.

On Friday, shares in Simon Property added 80 cents to $85.68, while shares in Brookfield rose 95 cents, or nearly 4 percent, to $24.76.

[Associated Press; By ALEX VEIGA]

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