Simon Properties Offers to Buy Out General Growth

Mall owner Simon Properties has offered to buy out rival General Growth Properties for $10 billion. A buyout could create the largest high-end mall owner in the US:

The nation’s largest shopping mall owner, Simon Property Group, made a $10 billion hostile bid Tuesday to acquire its ailing rival, General Growth Properties.

The deal would allow General Growth, the No. 2 owner of shopping centers, to emerge from Chapter 11 bankruptcy protection. General Growth 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. General Growth’s best known centers include the Glendale Galleria in Southern California and the South Street Seaport in Manhattan.

The offer would fully repay $7 billion to General Growth’s unsecured creditors and $3 billion to shareholders. Stockholders would get $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 made the public offer after General Growth executives failed to make a “substantive response” Simon’s overtures.

The Wall Street Journal gives a bigger picture on what this means for mall ownership and retailers:

The deal, if accepted by General Growth’s board and approved by its creditors and U.S. Bankruptcy Judge Allan Gropper, would combine two of the largest and oldest mall owners in the U.S. into a colossus with 550 malls—at least a third of the entire U.S. market. Such heft would give Simon unrivaled clout in lease negotiations with retailers and in financing talks with its lenders.

The deal would put half of the highest quality malls in the U.S. under Simon’s ownership, according to Green Street Advisors Inc. Of the 307 U.S. malls rated “A quality”—generally meaning they generate sales per square foot of $400 or more each year—Simon owns 71 and General Growth owns 77. Some analysts say it is those high-quality malls that Simon most covets, and that Mr. Simon might opt to shed General Growth’s lower-quality properties if his bid succeeds.

Should General Growth choose to accept Simon’s bid, the combination will have ramifications for mall retailers such as Gap Inc., Footlocker Inc. and Limited Brands Inc. A mall owner with hundreds of locations can pressure retailers to open stores in struggling malls as a condition of getting space in its best-quality malls. In addition, a retailer is less likely to fight a giant landlord over the terms of a given store’s lease if the standoff might influence negotiations on its leases at other of that landlord’s properties.

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