Simon makes $10 billion hostile bid for General Growth

Nation's largest mall owner would get Harborplace, Cross Keys, Towson Town Center, others

Simon Property Group, the nation's largest shopping mall owner, announced Tuesday a hostile $10 billion bid for General Growth Properties, including Baltimore's Harborplace pavilions and prime suburban malls across Maryland, raising hopes that a new owner could help rejuvenate those properties.

Indianapolis-based Simon Property, which owns Arundel Mills mall, submitted its offer last week and announced details after officials said they received no "substantive response" from General Growth, the Chicago-based real estate company that filed for bankruptcy last April. The sale would allow General Growth, which ranks as the second-largest mall owner in the country, to emerge from Chapter 11 bankruptcy protection.

But General Growth executives rebuffed Simon's offer late Tuesday, saying they were exploring alternatives to emerge from bankruptcy, including restructuring with an infusion of institutional equity capital or selling the company. They didn't rule out consideration of a future offer from Simon.

The possibility of a Simon acquisition drew a positive reaction from local retail industry analysts and tenants of General Growth properties who hoped the company could breathe new life into some retail centers such as Harborplace & The Gallery and The Village of Cross Keys, both in Baltimore. Such a deal also raised questions, including whether it would run afoul of antitrust regulations and draw opposition from retail tenants opposed to Simon's dominance in the marketplace.

In Maryland, the deal would give Simon a stronger local presence and could mean that tenants in Simon malls elsewhere in the country might be persuaded to set up shop here, said Rene Daniel, president of the Daniel Group, a national consulting firm, and a principal in real estate brokerage firm Trout Daniel. He said Simon is considered "the most important name in the shopping center business.

"It can mean nothing but good for the market," Daniel said, adding that Simon's financial stability "will breathe confidence in the market" and could help ensure the survival of General Growth holdings.

Simon representatives declined Tuesday to discuss the possible fate of any General Growth holdings if the company emerges as the buyer. They also warned that because of the "uncertain economic environment that exists today," the $10 billion offer isn't "open-ended."

Such a sale would give Simon some of the most prized and heavily trafficked retail properties in the country, including Faneuil Hall Marketplace in Boston and South Street Seaport in New York. It would put in Simon's portfolio many of Maryland's best-known commercial properties, such as Towson Town Center, White Marsh Mall, Owings Mills Mall, Mondawmin Mall and The Mall in Columbia. And it would mean that Simon would control just about every major shopping mall in the Baltimore area.

Rouse history

All of General Growth's Maryland properties were developed by the Rouse Co., which General Growth acquired for $11.3 billion in 2004. General Growth later ran into financial trouble, largely as a result of the Rouse acquisition.

Simon officials disclosed in November that they were hiring advisers to study options for acquiring General Growth's holdings. Its offer this month includes about $9 billion in cash and would pay off all of General Growth's unsecured creditors.

But according to analysts, Simon's bid values General Growth shares at around $9, while General Growth's largest shareholder, Pershing Capital, believes the company is worth more than $12 a share. When General Growth filed for bankruptcy court protection last April, it listed $27 billion in debt.

In a letter to David Simon, chairman and chief executive of Simon, General Growth's CEO, Adam Metz, said the company plans either to launch a possible sale of the company or an effort to raise capital and would provide detailed information on assets and financial projections by the beginning of March.

"We and our board of directors have given considerable thought to your indication of interest and have concluded based on discussions with other interested parties that it is not sufficient to pre-empt the process we are undertaking to explore all avenues to emerge from Chapter 11," Metz wrote.

"We would like to include Simon as part of this process," Metz said in the letter. "We believe the information we would provide ...will enable you to better understand the company" and "get to a higher valuation."

Local retail industry experts said Simon is a logical suitor for General Growth and its properties.

"It's a very good company, a very good operator," said Mathias J. DeVito, former chairman and chief executive officer of the Rouse Co., which regularly competed with Simon for land and tenants. "The only thing I think that's worrisome is the size of the company. It would be ... humongous."