Simon says: General Growth, negotiate!

February 18, 2010

You’d think a company in bankruptcy has few weapons with which to defend itself against a predatory buyer. But in the case of bankrupt mall operator General Growth, the tone that would-be salvager Simon Property has taken makes it sound as if the court-protected business has some leverage. That’s because it does.

Late on Wednesday, Simon threatened to walk away from its $10 billion bid if General Growth did not begin talks soon. Chief Executive David Simon accused General Growth of “inappropriately speculating with creditors’ money”. Simon wasted no time getting nasty. It only made its offer to General Growth public the day before.

The offer also came a week before General Growth would have had to apply for a six-month extension period giving it the exclusive right to come up with a plan to emerge from bankruptcy. So where does General Growth’s management get the chutzpah to hold off buyers when creditors have already arrived to claim the company’s assets?

General Growth is a lot more likely to be able to convince the court and its creditors that its bankruptcy was the result of tough economic conditions and liquidity concerns, rather than anything management did to ruin the business. Most companies in bankruptcy say this, but in the case of General Growth’s assets, as opposed to say Lehman Brothers’, the “not our fault” argument could find more sympathy.

More importantly, it looks as if creditors will get their money. Next down the line in bankruptcy are shareholders and others represented by the company’s existing management. That may be why Simon is coming out with its fightin’ words.

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