Simon bids for GGP: Bidding war begins

The bidding war for GGP officially got started today. Simon announced a $10B offer for all of GGP. The offer looks like Simon trying to low-ball GGP. To us, this offer has no chance of being accepted. We know there will be many more offers coming, with the price increasing substantially.

Let’s look at the Simon’s offer. The 10B offer is $7b for unsecured creditors and the remaining $3B is for equity.

Simon’s offer would provide a 100% cash recovery of par value plus accrued interest and dividends to all General Growth unsecured creditors, the holders of its trust preferred securities, the lenders under its credit facility, the holders of its Exchangeable Senior Notes and the holders of Rouse bonds, immediately upon the effectiveness of a definitive transaction agreement. This consideration to creditors totals approximately $7 billion.

General Growth shareholders would receive more than $9.00 per General Growth share, consisting of $6.00 per share in cash and a distribution of General Growth’s ownership interest in the Master Planned Community assets valued by General Growth at more than $3.00 per share.

Now, with unsecured creditors they will agree to any offer that provides them with 100% of their par value plus accrued interest and dividends. This is the most, in cash, that unsecured creditors can get anyways (unsecured could go for an offer where they convert to equity buy Simon’s offer didn’t mention this). So Simon saying that 100% of the unsecured agreed to the offer doesn’t really mean much.

The interesting thing about this offer is that now the market knows that unsecured will get 100% and equity is likely worth something. Interestingly, after the offer was made public the GGP equity was trading around $12/share for a market cap of over $3.75B. This means, the market was expecting another higher offer.

Later in the day, we got news that Bill Ackman believed that the value of GGP equity “is worth as much as 3 to 4 times what Simon is offering — on the order of $30 to $40 per share”. We agree with Ackman that GGP is worth much more than what Simon is offering. Although the range that Ackman mentions in at the high-end of the range.

We still have plenty of other interested players, including BAM, that will likely make some public statements in the coming days. The games have begin and we expect a few more rounds before all is said and done.

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