General Growth battle intensifies
The battle for control of General Growth, owner of shopping centers across America, continues, as it weighs two rival offers.
General Growth, which is trying to exit bankruptcy, will consider at a board meeting Thursday whether to postpone a key court hearing set for Friday as it continues talks with suitors Simon Property and Brookfied Asset Management.
It has asked Simon to increase its $5.8 billion bid. General Growth may also come back with a new counter0ffer on antitrust issues that could arise from a merger of the two largest U.S. mall owners.
Despite being in bankruptcy since last April after grappling with falling rents and rising vacancies, bidders are keen to take control of the Chicago-based company, which owns a number of malls which generate high cash in posh destinations.
If shoppers, which fuel America’s economy, return to stores in force, it could turn into a good investment.
Busy week ahead at the mall
General Growth has a busy week ahead.
The No. 2 U.S. mall owner is weighing a $5.8 billion takeover bid from its larger rival, Simon Property.
It postponed a hearing in bankruptcy court to Friday to have a ‘stalking horse’ bid approved, which would set the floor for future offers for the company.
General Growth has so far favored a bid led by Brookfield Asset Management to help it exit bankruptcy, choosing it over another offer by Simon to come in as a passive investor and buy a minority stake in the company.
But it still has to figure out whether Simon’s offer to buy all of the company makes sense. The latest postponement of the hearing — the third time it has done so – could be a sign it is doing just that.
When Simon put in a bid, it wanted it to be a slam dunk. It offered $18.25 per share for all of General Growth on Sunday, more than double its initial takeover offer of $9 per share and a 21.7 percent premium to the Brookfield-led bid at $15 per share.
But the answer may not be that easy for General Growth. The company rejected Simon’s recap offer due to qualitative issues, such as what it would mean to have a competitor own a large piece of it, even though Brookfield asked for warrants worth hundreds of millions of dollars in return for its investments while Simon did not. In the past, it has raised antitrust concerns around merging the No. 1 and No. 2 U.S. mall operators.
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Simon takes fresh tack in bidding battle for bankrupt GGP
Simon Property says it is teaming up with hedge fund Paulson to try to unseat Brookfield Asset Management as the key investor in General Growth Properties as the mall operator angles toward an exit from its bankruptcy.
Simon said it and Paulson would invest $2.5 billion to help General Growth exit bankruptcy, and more importantly, make the investment without taking any warrants to buy shares like Brookfield and other investors have under its current plan, Paritosh Bansal reports.
Paulson, the $32 billion hedge fund run by billionaire investor John Paulson, has made a commitment to co-invest $1 billion with Simon. Sources told us earlier this week that Simon was looking at ways to revise its offer for GGP, which was seen getting hung up on anti-trust concerns.
GGP filed for bankruptcy protection nearly a year ago. It has submitted a proposal to emerge from bankruptcy court backed by three large investors. Under that plan, General Growth would emerge as an independent company. It set an April 22 deadline for objections to the plan.
Paulson’s money goes up against Pershing Square Capital Management and investment manager Fairholme Capital Management, which committed about $3.9 billion at $15 per share to General Growth. General Growth would give these investors warrants for 60 million shares in return for their equity commitment.
Simon says … higher bid
Here’s the latest twist in the General Growth saga: Simon Property says it is weighing a higher bid for its smaller, bankrupt rival and could come up with something within a week. That’s not surprising.
When General Growth investors Bill Ackman and Fairholme Capital Management stepped up with $3.3 billion of fresh capital to shore up a Brookfield Asset Management-backed plan, Simon lost the edge it had with unsecured creditors. The unsecured creditors stand to get cash under both plans now. And experts said it was too early for Simon to walk away from the game.
For now, Simon is trying to take away General Growth’s excuses for rebuffing its bid.
General Growth raised questions about Simon’s funding for a deal. So Simon said it is rallying support from Blackstone Group and sovereign wealth funds, and putting together a $6 billion credit line from JP Morgan.
General Growth asked if Simon would offer stock to General Growth’s equity owners. So Simon said it would be open to the bankrupt company doing due diligence on Simon to help it evaluate Simon’s equity.
Simon is also planning to structure any revised bid in a way that makes it directly comparable to the split company deal that General Growth has proposed. The idea is an apples-to-apples comparison will allow for negotiations on other substantive issues.
It is also urging General Growth to not give its backers warrants worth hundreds of millions of dollars, which would make it that much more expensive for Simon to buy the company.
Bankruptcy no barrier to entry for General Growth stock
There were more than a few quizzical looks in the newsroom this week when General Growth Properties said it would again list its shares on the New York Stock Exchange. Wouldn’t bankruptcy preclude the stock from being on the Big Boad? Not only does being bankrupt not keep your stock from being traded, but from the reaction of investors, it won’t even make your stock a sell.
Ilaina Jonas reports General Growth is not alone as having its shares trade on the Big Board while operating under Chapter 11 bankruptcy protection. A representative of the exchange did not know how many of the approximately 2,425 companies trading on the New York Stock Exchange were in Chapter 11. But a handful, such as W.R. Grace, have continued to trade on the Big Board post-bankruptcy.
General Growth is a bit different, still. It was delisted after its April filing and has now returned. The company has a market capitalization of over $4 billion, making it the 15th-largest publicly traded REIT of nearly 130 REITs traded on the NYSE. About half of General Growth’s shares are owned by hedge fund manager William Ackman of Pershing Square Capital Management and by Chairman John Bucksbaum and his family or family’s trust. Management is still calling the shots, even from bankruptcy, since the pervasive view – though not officially the view of the court yet – is that the company was sent into the tank by the credit crisis and not anything fundamentally wrong with its business. There is even an equity committee taking part in the bankrtupcy proceedings.
Clearly the stain of Chapter 11 is not worrying investors. The stock, on its re-debut, is up nearly 3 percent in early afternoon trade.
DealZone Daily
U.S. mall owner General Growth Properties is looking to raise up to $2 billion from public markets to buy its way out of bankruptcy and fend off an unwanted takeover approach. The U.S. no. 2 is facing pressure to enter talks with market leader Simon Property Group, itself in discussions with Blackstone about the private equity firm co-investing in its bid.
National Australia Bank said it is actively pursuing AXA Asia Pacific, despite concerns the takeover fight for the regional arm of the French Insurer was distracting it and hurting earnings growth. The competition regulator last week raised concerns over an NAB-AXA alliance, bolstering the position of rival AMP.
Meanwhile, AXA Private Equity has entered exclusive talks to buy the private equity assets of investment bank Nataxis, which hopes to sell them for 507 million euros, plus a premium to valuation based on performance.
For other Reuters deals news, click here.
In other media:
Canadian precious metals group Barrick is planning to spin out its African gold mining operations and list them in London, the FT reports. Analysts think the miner, with assets in north-west Tanzania, could be worth about $6 billion if traded at the same per ounce valuation as rival Rangold.
Andy Brough, the outspoken fund manager at Schroders , which holds around 10 percent of Babcock stock, has branded the company’s bid for VT Group a “deal too far”, the Times writes. Babcock yesterday lifted its approach for defence support services firm VT, prompting Brough to call 7 pounds a share for the business a crazy price.
The afternoon deal: Spare a dime?
From General Growth to Donald Trump, the Web is buzzing with news of companies trying to get into, out of, or just avoid bankruptcy.
Here is a selection from the past two days:
- Few think General Growth home lots worth $3 per share (Reuters)
- General Growth eyeing public market for exit: source (Reuters)
- Tribune given till March 31 to file bankruptcy plan (Reuters)
- Lehman led trading in bankruptcy claims in 2009 (Reuters)
- A month after bankruptcy, challenges still looming large for JAL (Kyodo News)
- Japan’s Willcom says files for bankruptcy (Reuters)
- Trucking failures to accelerate this year (Reuters)
- Trump, Icahn locked in battle for N.J. casinos (Reuters)
- Lawyers see bankruptcy, litigation boom coming (Nashville Business Journal)
Simon says: General Growth, negotiate!
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.
The afternoon deal: Simon says …
Simon Property’s $10 billion offer for General Growth is seen as a pre-emptive strike coming just a week before a bankruptcy court hearing where General Growth was expected to ask for more time to offer its own plan for emerging from bankruptcy, writes Reuters’ Ilaina Jonas and Helen Chernikoff.
Here are some different takes on the deal:
* “Due to synergies between Simon Property and General Growth, we feel it is unlikely a competitor would be able to bid more than SPG, so we expect that other meaningful bids are unlikely,” Rich Moore, managing director at RBC Capital Markets in Solon, Ohio, in a note to investors. – Bloomberg
* “Ever since General Growth entered bankruptcy-court protection last year, potential buyers have been circling the mall owner’s premium retail assets,” Michael Corkery writes in the WSJ’s Deal Journal. The blog lists Brookfield Asset Management and Vornado Realty Trust as potential bidders.
* The official line from Simon: “Simon’s offer provides the best possible outcome for all General Growth stakeholders. Simon is in the unique position of being able to offer General Growth creditors and shareholders full, fair and immediate value.”
* In a Reuters Breakingviews story Rolfe Winkler writes that Simon may have to bump up its bid as common equity holder Pershing Square Capital Management looks for a sweeter deal and creditor Brookfield Asset Management is working to help GGP exit bankruptcy on its own.
Good news for some: bankruptcies head to record year
This week’s mega-bankruptcies by mall operator General Growth Properties and Canadian newsprint company AbitibiBowater, have put 2009 well on its way to being the worst ever for filings, according to a report released Thursday by research firm BankruptcyData.com.
General Growth had pre-bankruptcy assets of $29.6 billion, overtaking chemical maker Lyondell Chemical as the biggest bankruptcy of the year so far. While far behind, AbitibiBowater is no slouch, with $10 billion.
According to BankruptcyData.com, these new entrants in the bankruptcy sweepstakes bring to 79 the number of bankruptcies by public companies this year, with total assets of $145 billion, 69 percent ahead of the pace of 2002, the worst year ever. Measured by the number of filings, 2009 is on pace to best 2001′s record bloodbath of 263 bankruptcies in a year, according to BankruptcyData.com.
Absent significant M&A and IPO activity (don’t believe the hype about the return of IPOs- despite a handful of recent IPOs, dollar volume is still 93 percent below where it was a year ago, even excluding Visa’s massive IPO, according to Thomson Reuters data), this isn’t entirely bad news for some: bankruptcies can provide a fees lifeline to lawyers and bankers (well, restructuring bankers at least.)
And the bonanza could get even bigger if and when General Motors files for Chapter 11. (PHOTO: Reuters/Lucas Jackson)
