Simon Property Seen Sweetening The Pot For General Growth

Investors and analysts are expecting mall giant Simon Property Group Inc. (SPG) to sweeten its $10 billion offer for General Growth Properties (GGWPQ) with other suitors possibly waiting in the wings.

General Growth late Tuesday said Simon's bid isn't sufficient. However, General Growth invited Simon to be part of the process as General Growth tries to emerge from Chapter 11 bankruptcy.

Simon's $9-a-share bid is seen as the first salvo in a possible bidding war that could see bids raised to between $12 and $15 a share, analysts say. Betting on that possibility, Wall Street sent General Growth's stock up 6.5% to $12.80 in afternoon trading Wednesday. At its close Tuesday, the stock had risen 27% since Friday.

"I would be surprised if Simon put its highest and best bid on the table right out of the chute," said Jim Sullivan, an analyst at Green Street Advisors, adding that there likely are other interested parties. However, he doesn't see Simon being overly aggressive.

"I think Simon has proven to be aggressive and prudent. I would be very surprised...if they pushed too far on this one," he said.

Simon, the country's largest mall owner with 321 U.S. malls, said it has offered to pay off General Growth's $7 billion in unsecured debt in cash or stock. It also would pay $6 a share to General Growth's shareholders and the equivalent of $3 a share after a spinoff of General Growth's residential-development division, including its massive Summerlin development in Las Vegas, as a separate company.

If the deal is successful, it would give Simon nearly one-third of the U.S. market and almost 50% of the 319 best-performing malls in the country in terms of sales.

The delicate dance began with Simon's bid and intensified Tuesday evening when General Growth released a letter responding to Simon and written by Adam Metz, the company's chief executive. The letter said General Growth was exploring numerous options including a stand-alone restructuring funded with institutional equity capital, various business combinations and a possible sale of the entire company. "We would like to include Simon as part of that process," the letter states. "We recognize the potential value that Simon could bring as an option."

The company also told Simon the present offer wasn't enough to "pre-empt" their Chapter 11 proceedings and that it may consider other proposals or change the process at any time.

"This was a stalking horse offer to get the attention of the courts and the creditors. There definitely will be a much higher price paid" for the company, said David Fick, an analyst at Stifel Nicolaus & Company. He estimated between $12 to $14 is fair value for General Growth.

William Acheson, a REIT analyst for The Benchmark Company, said he sees bids rising to between $13 and $15 a share. He added, though, that he doesn't think Simon would overpay. They have a history of "getting quality assets from distressed owners at attractive opportunistic prices," he said.

Other possible suitors include Canadian property giant Brookfield Asset Management Inc. (BAM, BAM.A.T), which had indicated interest in the past, according to people familiar with the matter. General Growth's board also has spoken with Brookfield about providing billions of dollars of capital for General Growth to exit bankruptcy in exchange for an ownership stake.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

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