WSJ Omits Major Part of GGP Valuation….With David Simon’s Help

The article which, as the WSJ has done since David Simon got involved with GGP simply parrots his viewpoint on anything GGP. I could make this a 20k word article but I will keep it brief. For those who desire more, do a “GGP” search on the blog for the past articles (>300 of them)

From the WSJ

Mall king David Simon doesn’t just shrug off those ever-so-rare rejections.

Case in point: Mr. Simon, chairman and chief executive of Simon Property Group Inc., still simmers about rival mall owner General Growth Properties Inc.’s rejection last May of his buyout offer.

He’s done the math, and he said Monday at Citigroup Inc.’s 2011 Global Property CEO Conference in Hollywood, Fla., that GGP shareholders would be better off today as part of his company. A GGP representative declined to comment.

Simon Property’s final bid on May 6 offered $6.5 billion for GGP’s equity, roughly one third in cash and two thirds in Simon stock at an exchange ratio of 0.1765 Simon shares for each one share of GGP. Mr. Simon assumes that a combined Simon-GGP would trade today at about $120, which isn’t a stretch since Simon Property’s stock has risen by roughly 25% to $105.63 since GGP rejected the bid.

Assuming that appreciation and the exchange ratio, Mr. Simon calculates that GGP shareholders today would have value of roughly $21.50 to $22 per share as part of Simon Property Group. “I can’t help it when their board decides to turn something like that down,” Mr. Simon said.

Instead, GGP elected to stay independent via a recapitalization led by Brookfield Asset Management Inc. GGP’s stock has hovered around $15 since the company emerged from bankruptcy in November, closing Monday at $14.57.

In GGP’s defense, the board’s decision was strongly swayed by fears that antitrust concerns ultimately would derail a merger with Simon Property. That would have left GGP without a partner, because Brookfield likely would have left the picture if GGP chose Simon Property.

Regular reader here are already screaming, I can hear them. What are the screaming???? HOWARD HUGHES CO!!!

See Howard Hughes was the little part of GGP that David Simon was going to toss off as a reject and let rot on the vine. In his first offer, he was going to give GGP holders $3 a share for it.  The $GGP board at the time saw the potential value in it and not only saw to it that HHC emerged from 11 funded, but let Bill Ackman become Chairman of the Board.

But before we get to it, let’s review the $SPG/$GGP saga.

David Simon made an initial offer that was nothing short of a joke at the time. It was immediately rejected by $GGP, as it should have been. There was posturing back and forth in which Simon failed to convince shareholders and bondholder taking less money in his offer was better than cashing out at a premium to it in the open market or holding for even better gains down the road. Brookfield Asset ($BAM) then cam along and beat Simon’s offer by $6 a share. This had the expected result of cauing Simon to stomp his feet and hold his breath until he turned blue when he did not get his way.

At the time we here raised the specter of the FTC, which Simon initially spat on until US retailers also raised concerns to the merger. In response Simon then amended their offer to include potential asset sales to accommodate potential FTC objections.

So, to sit here and say that the GGP in totality that exists now is the same $GGP that would have been inside Simon is materially false. Further, Simon even courted Blackstone to help them finance the transaction which means Blackstone would have taken a significant chunk of $GGP with it. In other words, David’s “valuation” above is simply gibberish, nothing more. He cannot say with even a shred of integrity what the final $GGP inside $SPG would have looked looked after the FTC review/asset sales so for him to “value” it today at $21-$22 under his watch is, as I heard it once called “fuzzy math”.

But, lets see were we actually are today? $GGP closed today at $14.57. $HHC, that little chunk spun off the shareholders that the WSJ AND David Simon seem to have forgot about closed at $67.13. Accounting for a 10-1 reverse split before emergence that would skew the #’s for HHC in all the above articles, that amounts to a pre-emergence price of $6.71. That gives us a current combined GGP/HHC price of ………drumroll…… $21.28. And, um, that is a hard number, not one gained through guesswork and a host of highly questionable assumptions. I’ll take it any day

David Simon has been stunningly disingenuous about GGP since the day he first began talking about it……nice to see nothing has changed.