Big player could join mall bid


POSTED: Saturday, February 20, 2010

Blackstone Group LP, the world's largest private-equity firm, might join Simon Property Group Inc.'s bid to buy bankrupt General Growth Properties Inc., two people with knowledge of the discussions said.

Blackstone is in preliminary talks with Simon, the biggest U.S. mall owner, said the people, who declined to be identified because the negotiations are private. Simon, which made public a $10 billion takeover offer for General Growth on Tuesday, would lead any resulting partnership, one of the people said.

A collaboration with Blackstone would give Simon more “;firepower”; and might allow it to raise its offer after General Growth, the owner of Ala Moana Center and Ward Centers, rebuffed it as too low, said Ben Yang, an analyst with Keefe, Bruyette & Woods in San Francisco. General Growth would consider a new bid if it were high enough, rather than moving forward with a plan to solicit more proposals, according to a person with knowledge of the Chicago-based company's position.

“;Simon made it clear in their offer on Tuesday that their offer contemplated bringing in one or more joint-venture partners,”; said Alexander Goldfarb, an analyst with Sandler O'Neill & Partners LP in New York. “;Taking on something as big as General Growth, it helps minimize the financial risk by bringing in co-investment partners.”;

While General Growth is open to pre-emptive bids, an offer from Simon or another company would have to be higher than what would be expected in an open bid and would have to be definitive and free of antitrust concerns and conditions to pre-empt the process, said another person familiar with the bidding process.

General Growth's directors were sued yesterday by a shareholder claiming they shouldn't have rejected Simon's buyout offer.

Chairman John Bucksbaum and six other board members were accused of breaching their fiduciary duty to the bankrupt mall operator's investors when they turned down Simon's bid, according to a complaint filed in state court in Chicago, where General Growth is based.

“;This conduct is substantially unfair to GGP and the company's public shareholders,”; investor James Young said in his complaint brought on behalf of stockholders and for the benefit of the company.

Under Simon's offer, General Growth shareholders would get about $9 a share, including $6 in cash.

General Growth filed for Chapter 11 protection in April, in the biggest real estate bankruptcy in U.S. history, after amassing $27 billion in debt to buy shopping malls. The company may raise $1 billion to $2 billion from public markets to fund its exit from bankruptcy, according to the person familiar with General Growth's plans, who asked not to be named because the negotiations are private. It would consider seeking more money if there were sufficient investor demand, the person said.