Just got back from a day on the inter-coastal waterway…first time, really neat. Now, let’s look at this and call it what it is…..
Why is Simon making this offer now? Monday….
What?
Monday is the date for the hearing to extend management’s request for exclusivity in proposing a plan of reorganization before the bankruptcy court.
What Simon is doing is proposing their own plan to the judge outside of the court process. They are essentially saying “here is a deal that will allow unsecured creditors to be paid in full, give some money to equity holders and will allow the company to emerge from Chapter 11”.
Simon knew GGP would reject their offer as being the joke it was and their feigned indignation it was is insulting to those with even a basic level of intelligence. When you have the company’s largest shareholder, Bill Ackman publicly stating he believe the common is worth $30-$40 a share, can Simon actually expect us to believe they thought he would vote to accept $9. Really? Really?
Does David Simon really think after all the public discourse over GGP (blogs anyway, the MSM missed this whole thing big time), that those who hold shares do not think they are worth AT LEAST twice what he offered? Is his world truly that insular?
Given approx. 50% of the common shares are owned by the Board and management, did he really think that any deal in which equity holders are given anything less that what they believe they are deserved would be given anything other than a passing glance?
Here is the thing though. On Monday the judge will extend GGP’s request for exclusivity because even though Simon’s plan is “fully financed”, there is still considerable doubt as the whether the deal would pass FTC scrutiny. Because of that, it is by no means a “done deal” even were GGP to accept. Since that is the case, the Judge will be inclined to let both processes play out and allow GGP’s request. Remember, in Chapter 11 management is legally obligated to maximize value for “all stakeholders” and that includes equity holders as well as full payment to debt holders (which is not at issue). All they need do is convince the judge they have a better plan to do just that. Ought to be easy…
What Simon is hoping for is that GGP will be forced at the hearing to disclose some details of what they and “other parties” have discussed or give more insight into their plans. It is a rather transparent attempt to gain an advantage at the bargaining table, one which I am sure the Judge sees for what it is.
When it is extended, Simon will be forced to make a real offer for GGP. It will have to be $13B or higher which values the equity at roughly $6B or near $20 a share. That is a number that would put pressure on management from all stakeholders to take it serious.
This offer at this time smacks of desperation on Simon’s part. It is as if David Simon knows he cannot match the financial firepower of the Brookfield boys, the possible FTC issues and is trying an end around to the eventual bidding war for GGP.
Here is Simon’s letter to GGP regarding GGP’s rejection of the offer
Mr. Adam Metz Chief Executive Officer General Growth Properties, Inc. 110 North Wacker Drive Chicago, Illinois 60606 Dear Adam, We appreciate that you have responded to the written offer we made to you on February 8, 2010, but we are concerned by your letter of February 16, 2010. It is simply wrong to characterize our offer as an “indication of interest.” As you well know, we have made a firm, fully financed $10 billion offer that provides immediate 100% cash recovery of par value plus accrued interest and dividends to all unsecured creditors, plus more than $9.00 per share in value to shareholders. Our offer has no financing contingency and can be completed quickly. The credibility of Simon Property Group as an acquiror speaks for itself, no one has completed more mergers and acquisitions in the retail real estate industry. Importantly, this is the only offer for General Growth which provides a full cash recovery for unsecured creditors while reducing risk and providing potential upside. It is far superior to any third-party proposal or stand-alone plan that would result from your “process.” Proceeding expeditiously to complete our transaction would prevent an extended period of market risk for your stakeholders. In addition, our offer would remove the serious downside risks associated with a recapitalization, the value of which would be inherently uncertain and subject to future market conditions, even if a recapitalization could be secured. Given the clear risks of pursuing an alternative plan, the current state of the retail industry and your company’s past history of risky financial choices, your lack of urgency should deeply concern creditors and shareholders. Time is passing and General Growth is inappropriately speculating with creditors’ money – the company’s high leverage means not only that equity value could be destroyed by relatively small market movements, but that the value of the unsecured debt is also at risk. Accordingly, it is not surprising that the Official Committee of General Growth’s Unsecured Creditors has publicly stated that it supports our offer and encourages you to engage with us promptly to allow our offer to be considered by your creditors and shareholders. We have tried for many months to explore a transaction with you that would give creditors and shareholders an attractive and expeditious exit from your bankruptcy process and have been repeatedly put off. Time and again, serious engagement with us has been pushed off into some indefinite future when you might start to begin to commence a “process.” While you pay lip service to time being of the essence, the “process” outlined in your letter will take many months before a transaction could be agreed and made available to stakeholders. Our offer is fully financed and we are prepared to complete confirmatory due diligence within 30 days, during which time we are also prepared to negotiate and enter into a definitive agreement that will bring certainty to the closing of a transaction. We will promptly provide you a draft of such a definitive agreement and are prepared to meet with your advisors to complete its negotiation. With respect to your equity holders, we do not believe there is any other party which can offer the value creation of a Simon-General Growth transaction. As you know, we are prepared to discuss offering Simon common equity instead of cash to those General Growth shareholders or unsecured creditors who would prefer to participate in the upside of owning Simon stock. While Simon equity is subject to market conditions, Simon is today — and would be following any transaction — a fortress of stability. We are unwilling to waste our time and resources in a process not conducted on a level playing field, that is dragged out to provide an unfair advantage to any party, or that will serve any agenda other than maximizing return for General Growth’s stakeholders — while also minimizing the risk and uncertainty of needlessly extending the bankruptcy proceedings. Accordingly, we urge you not to pursue another proposal that you might receive, whether before or after the commencement of your process – as you threaten in your letter – without also substantively engaging with us. Regarding access to the data necessary for us to perform our confirmatory diligence, we are willing to agree to customary undertakings to preserve the confidentiality of such information. However, in light of your conduct to date, and for the reasons outlined above, we are not willing to agree to any restriction on our right to make proposals at any time or to otherwise speak freely, including to all of General Growth’s stakeholders, or to agree to any other standstill or similar provision. I want to reiterate that our offer is not open-ended, and we have a number of other opportunities under consideration. We sincerely hope you will engage seriously with us without further delay. Very truly yours, David Simon Chairman of the Board and Chief Executive Officer cc: Official Committee of Unsecured Creditors
Funny…..but, am I the only one who wonders who that letter was actually being written to? It certainly was not being written to Mr. Metz. If it was, why even write it? Metz rejected the first offer out of hand and I am guessing is well aware of Simon’s history. Why regurgitate it to Metz and reiterate the offer?
Does David Simon think Metz , Ackman et. all did not understand it the first time?
Does David Simon think that if he insults GGP’s management team they will be more inclined to accept the offer?
Does David Simon know GGP is not in advanced talk with another entity?
Does David Simon really think that the above mentioned management, with their huge personal stake in GGP would not take a $9 a share offer serious and not summarily reject it unless they have other tangible, better alternatives in the works?
Does David Simon really expect shareholders to agree to his offer, take a 30%+ loss on their stock holdings (based on today’s closing price) and cease all other negotiations for 30 days while Simon “completes due diligence” and then “enter into a definitive agreement” (meaning the final price may be lower than this one)?
I don’t get David Simon. I understand he has been a great acquirer of other properties in the past. I also know that this is the first time a potential deal has taken place in the spotlight like this.
It was just last fall he said he was looking “at GGP in its entirety“. Later it was disclosed during that time frame they had been buying unsecured debt. As late as last week, they said they were “not in active negotiations” with GGP but according to Adam Metz’s letter to Simon yesterday, they were talking. I guess it depends on what your definition of “active” is.
Now this, tantrum, for lack of a better word from Mr. Simon. I will say this, if David Simon ever holds a poker game, please get me a seat at the table. This was a offer we all knew was coming, even after it was essentially denied last week and it was a flop. David Simon bluffed to beat a straight with a pair of 5’s.
My money is still on the Brookfield Asset (BAM)/Brookfield Properties (BPO) team.