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Published: Wednesday, 2/17/2010

Top mall firm makes $10B takeover bid for ailing rival


LOS ANGELES - Simon Property Group Inc., the nation's largest shopping mall owner, made a $10 billion hostile bid yesterday to acquire ailing rival General Growth Properties.

The acquisition would allow General Growth, the No. 2 owner of shopping centers, to emerge from Chapter 11 bankruptcy protection. It filed for bankruptcy last year after buckling under the weight of billions in debt it racked up during a massive expansion effort fueled by cheap credit.

In the Toledo area, General Growth owns the Shops at Fallen Timbers outdoor mall in Maumee. Simon Property used to own Woodville Mall in Northwood and the former North Towne Square mall in North Toledo.

The move is Simon's second attempt at a major acquisition in three months. In December, Simon offered $700 million in cash and stock to buy more than 60 outlet shopping centers from another competitor, Prime Outlets Acquisition Co. The deal is pending.

Simon is using its comfortable cash cushion and credit lines to take advantage of falling commercial property values, which are off 40 percent from their peak in 2007. And General Growth has some prized centers, including the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.

Simon has been able to weather the economic downturn despite rising retail vacancy rates. The Indianapolis-based company pop-

ularized the so-called lifestyle center mall design that turned malls into neighborhoodlike communities. Simon owns more than 380 properties.

Under terms of the offer, General Growth's unsecured creditors would get $7 billion, which would pay them in full.

Shareholders would receive $3 billion, or $6 a share in cash and $3 a share in other assets. The offer, however, might be amended so shareholders could receive Simon stock instead of cash.

"Simon's offer provides the best possible outcome for all General Growth stakeholders," said David Simon, chairman and CEO.

Simon disclosed its offer after General Growth's board failed to respond to a formal offer last week.

In a letter to General Growth's board dated Feb. 8, Simon spelled out its offer and argued shareholders stand to gain more from a takeover than if General Growth emerged from bankruptcy as a standalone company, or accepted a rival bid.

A spokesman for Chicago-based General Growth had no comment.

Though the official committee for General Growth's unsecured creditors has backed the deal, stockholders appeared to be looking for a sweeter offer from Simon or another competitor. Shares in General Growth shot up nearly 28 percent, or $2.62, to $12.02.

Alexander Goldfarb, an analyst with Sandler O'Neill & Partners, said he expects other offers to drive the bidding higher.

"General Growth has a number of options," Mr. Goldfarb said. "This is not the only one."

Any offer, should it be accepted, would be a steal compared to what General Growth was worth in 2007. Back then, with shares trading above $60, General Growth had a market value of about $15 billion. At yesterday's closing share price, the company was valued at about $3.8 billion.

But any new owner would have to deal with General Growth's massive debts. The company racked up $27 billion in debt by the time it sought shelter from creditors last April, making it the largest real estate bankruptcy case in U.S. history.

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