Rouse's new owner is buying a reputation far above its own

Buyer's known more for making money, not saving downtown

August 29, 2004|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

CHICAGO -- The headquarters of General Growth Properties Inc. is housed in a squat, four-story mushroom of a building among the soaring skyscrapers of The Loop, this city's famed business district.

The modest building might seem out of place in the city of big shoulders and unfit for a multibillion-dollar company that is the nation's second-largest owner of shopping malls.

But it portrays a lot about the personality of General Growth, which has quietly climbed from small-town roots to become one of the biggest players in the volatile mall market.

"It's not all about appearance," said David Keating, a General Growth spokesman. "It's what's happening on the inside."

Much has been happening inside General Growth lately as it prepares to seal its biggest deal in its 50 years -- the acquisition of the Rouse Co. of Columbia, Md., for $12.6 billion, including cash and assumed debt.

The size and scope of the transaction, announced Aug. 20, was somewhat unexpected for a company that has made its fortune constructing midlevel properties and not the ritzier malls and revolutionary ideas that defined Rouse.

Yet General Growth has been building to an acquisition like this for a decade. It went public in 1993 after deciding it would have to buy up competitors to remain competitive as prime locations for major malls becoming scarcer.

The company has gone on a buying frenzy since, amassing $13.2 billion in assets. Today, it owns 178 malls in 41 states, second only to the Simon Property Group of Indianapolis.

"We saw the business changing from one of development to one of acquisition and consolidation," said company chief executive John Bucksbaum, whose father and uncle built the company from a grocery business 50 years ago.

General Growth had been eyeing Rouse for awhile and had casually raised the subject with Rouse executives over the years, Bucksbaum said.

"In the back of your mind, you think about the what-ifs," Bucksbaum said. "I've been playing the what-if game for quite awhile. That doesn't mean you think it will ever happen."

Rouse contacted buyer

The what-if became a what-might when Rouse contacted General Growth two months ago. Bucksbaum wasn't wholly surprised, he said, because Rouse had been rumored to be an acquisition target.

Analysts had speculated as much after Rouse hired an investment banker as a chief financial officer, and began shedding under-performing properties. Last year, for example, Rouse sold six malls in the Philadelphia area to acquire a 50 percent stake in the successful Christiana Mall in Newark, Del.

While the Rouse acquisition was seen as epic in Baltimore, where the developer was responsible for the city's downtown renaissance and the creation of its most prosperous suburb in Columbia, the sale to General Growth took but a few meetings to negotiate.

Bucksbaum said his company agreed by late July to buy Rouse for 25 percent above stock value, Rouse's initial offer.

"We did a lot of work to become comfortable with what we thought the deal was worth," Bucksbaum said. "That $67.50 [a share] was something we thought was fair to them and fair to shareholders. It was the first offer."

At 4:30 p.m. on Aug. 19, Rouse board members convened in New York to consider the deal. They signed a contract at 2 a.m. the next day.

Close likely this year

Rouse shareholders must still approve the deal, which is expected to close by the end of the year. Shares of Rouse have risen to $66.51, at Friday's close, from $50.61 the day before the announcement, while General Growth fell to $28.84, from $31.54 before the announcement.

Their holdings suggest the two companies couldn't be more different.

Rouse owns "urban festival marketplaces" such as Harborplace in Baltimore and Faneuil Hall in Boston that have been copied and credited with downtown revivals. Its Fashion Show Mall in Las Vegas is one of the most ostentatious shopping centers in the country with models sashaying on runways in daily fashion shows and big-screen televisions blasting commercials and music videos outside the mall.

General Growth has a few luxury malls, but most of its centers are more common, steady performers. Rouse's mall tenants produce average retail sales of $420 a square foot, while General Growth's get $360 a square foot, said Ryan Dobratz, an analyst with Morningstar.

The two companies' roots, however, aren't so different. Both began as family ventures that were ahead of their times, before shopping moved from downtowns to suburbia.

The late James W. Rouse started the Rouse Co. as a mortgage banking firm with a partner in 1939. Three Bucksbaum brothers launched General Growth in Iowa in 1954.

First mall

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