UPDATE: General Growth To Simon: Objectives Aren't The Same

Mall king Simon Property Group Inc.'s (SPG) $10 billion effort to take over rival General Growth Properties Inc. (GGWPQ) intensified Thursday as General Growth sent a terse letter reminding Simon that its objectives "are not aligned with ours."

Meanwhile, people on both sides said that a critical bankruptcy court hearing is approaching which will likely determine how long General Growth will be in the driver's seat when it comes to proposing a plan to emerge from Chapter 11.

General Growth, the country's second-largest mall operator after Simon, has been operating under bankruptcy court protection since last spring when the company collapsed under a crushing debt load. Simon, which has been hungrily eyeing the company for months, made its move on Tuesday with a bid valued at $9 a share.

In a related development Thursday, people familiar with the matter confirmed that Simon has talked with several deep-pocketed investors, including Blackstone Group LP (BX) and various sovereign wealth funds, about potentially joining the bid or helping it finance the purchase. However, no deals have been completed in that regard.

Simon currently can pay the entire $9 billion cash portion of its offer price with its cash on hand and available borrowing capacity. However, the financial partners it has sounded out could be called upon if it must raise its bid. Additionally, those partners could be asked to help Simon recapitalize the purchase after it is completed, lending it capital to replenish its cash reserves, these people said. Simon's talks with Blackstone were first reported by Bloomberg.

Thursday's letter from General Growth chief executive Adam Metz was the latest in a testy exchange and public relations effort that the two companies have engaged in since the bid was made.

General Growth first rejected that bid as insufficient but invited Simon to be involved in its process for evaluating interest from buyers and other recapitalization plans. Simon shot back with a warning by the nation's largest mall operator and real-estate investment trust Wednesday that it might drop its takeover offer or go hostile if General Growth didn't come to the bargaining table soon.

On Thursday, Metz reiterated that its objectives was to maximize value for the company and shareholders, and wrote "understandably, your objectives are not aligned with ours." The letter to David Simon, Simon Property's chief executive, also said: "We hope you will, nonetheless, participate in our process."

General Growth currently controls the process because it is currently in a period of "exclusivity" in bankruptcy court. That means that General Growth is the only one who can propose a reorganization plan.

But that period expires at the end of the month. General Growth has applied for a six-month extension and that's what will be on the agenda in bankruptcy court on March 3. But U.S. Bankruptcy Judge Allan Gropper might hesitate because of Simon's bid.

Simon's effort to force General Growth to the bargaining table is being supported by unsecured creditors who hold $7 billion in debt because, if Simon is successful, they would get repaid all of their money. So they will likely argue against the extension of exclusivity.

Investors and analysts are expecting Simon Property to sweeten its bid. General Growth has indicated that there are other suitors in the wings, although none of them have been publicly identified.

Simon Property shares closed up 1.8% at $77.22 trading on the New York Stock Exchange. General Growth was down 1.78% at $12.69 on the Pink Sheets.

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

(Kris Hudson of The Wall Street Journal contributed to this report)

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