The Force Is With Simon Property, Not GGP, in Mall Wars

By KRIS HUDSON AND MIKE SPECTOR

Mall king Simon Property Group already has won over a critical constituency in its $10 billion takeover grab for rival General Growth Properties. Unsecured creditors support Simon's plan because it earmarks roughly $7 billion for paying them off in cash.



That will weigh heavily on bankruptcy Judge Allan Gropper's decision on how GGP is reorganized.



But shareholders also have a voice.



And the GGP board, which includes some big stockholders, has so far rejected Simon's bid as insufficient.



The trouble is, GGP's strategy to exit from bankruptcy alone relies heavily on paying unsecured creditors at least partly with stock.



Even with a partner such as Brookfield Asset Management willing to inject $2 billion or more, and potentially others prepared to follow the Canadian firm, GGP would be hard-pressed to raise the $7 billion required to pay off creditors in full.



That leaves Simon, or any other deep-pocketed bidder, with the upper hand. Creditors, not surprisingly, tend to prefer the certainty of cash over shares. Simon, which owns 321 U.S. malls, has $4 billion in gross cash and $3.5 billion of credit lines. Also, it has possible strong financial partners, including Blackstone Group and sovereign-wealth funds, which could chip in more if needed.


On top of paying off creditors in full, Simon is offering GGP shareholders the equivalent of $9 a share in cash and other interests.


Even if GGP can offer, for example, a deal it says is worth $12 to shareholders, it still has a problem.

It either has to raise more cash, persuade a decent number of creditors to accept stock, or persuade Judge Gropper that it makes sense to allow creditors to take some shares.



The latter looks tough, given creditors can typically push to be paid back in cash for their claims when possible during bankruptcy.



Yet GGP's shares still trade at $12.76 on the Pink Sheets over-the-counter exchange, well above Simon's $9 offer, suggesting the market expects a sweeter bid.



The best, and cleanest, hope for GGP shareholders is that a cash-rich rival bidder tops Simon, creating a straight bidding war for the sought-after assets.



Others that could feasibly get involved include Westfield Group, Vornado Realty Trust and European commercial-property giant Unibail-Rodamco.



If not, the action likely will move to bankruptcy court on March 3 for a hearing on whether or not General Growth should continue with the exclusive right to propose a reorganization plan.



That starts getting messy. GGP still could look for a way to force Simon to pay more. But without the cash to pay off creditors in full, it would have its work cut out.