Simon Property’s Bid for General Growth Properties

Update: I emailed Kris Hudson from the WSJ about the deal, and whether the Brookfield deal was currently being valued at $15 or $15.50 and got this response:

“Sorry about that. It turns out that the deal value remains $10 for GGP and $5 for GGO. It’s the warrants that are now priced at $10.50. I mistakenly reported in an initial story early yesterday that the deal price had risen to $10.50. I am writing a correction on that right now.”

I’m going to start with a quote from this article:

“For General Growth investors to do better than Simon’s offer under a recapitalization plan, they would have to value its properties higher than any of those of its U.S. peers, one of the sources said.”

If you’re following the deal (and why would you be, unless you’re invested?), you heard it announced this morning that General Growth’s (GGP) board would recommend the Brookfield (BAM) offer to recapitalize the company in lieu of the Simon Property deal, despite the fact that the Simon Property deal appears to be better for shareholders.

Why? Because the Brookfield deal includes issuing warrants to buy 120 million shares. Simon was offering to recapitalize the company without issuing warrants. GGP says that accepting the Brookfield deal will position it better to receive more offers from other bidders going forward.

It’s now being reported, however, that Simon, in conjunction with Blackstone Group, made another offer to buy the entire company late on Sunday. The new offer values the company at a total of $18.25 per share, broken down as follows: $13.25 for what’s currently GGP, and $5 per share for what will become General Growth Opportunities.

Brookfield’s best offer values the company at $15.50 per share – and that’s only if you don’t consider the dillutive effect of the warrants that are being issued. The two offers, in reality, aren’t even close.

We’ll see what happens. I’m rooting for a higher buyout offer to follow. C’mon bidding war! But now I’m just being greedy. It will be interesting to see how close the shares go to $18.25 tomorrow, based on how likely the market thinks it is that the offer will be accepted. I knew something was up when the shares went up almost 7% today, but couldn’t confirm it until I read the news linked above. I’ll try to keep you posted. Good luck and thanks for reading.

Disclosure: Long GGP