General Growth receives $2.5 billion investment commitment from Simon

By Caroline Salls

Pittsburgh, April 14 - Simon Property Group, Inc. has agreed to invest $2.5 billion in General Growth Properties, Inc. at the same per share price as the General Growth plan of reorganization sponsored by Brookfield Asset Management, according to a Simon news release.

Simon said its proposal is substantially more favorable to General Growth and its equityholders than the currently proposed plan of reorganization because it would eliminate the highly dilutive warrants that the company proposes to issue to Brookfield, Pershing Square and Fairholme Capital.

Simon said its proposal also includes a $1 billion co-investment commitment by Paulson & Co.

According to a letter sent to General Growth by Simon Property Group, Simon would acquire 250 million shares of General Growth common stock for $2.5 billion, or $10.00 per share.

Simon would also backstop the General Growth Opportunities rights offering as contemplated in the Brookfield-sponsored recapitalization and would otherwise enter into agreements on the same basis as Brookfield regarding the recapitalization of General Growth Properties and the spin-off of General Growth Opportunities.

Simon said it would not receive any warrants or similar payment or fees for its investment commitment.

As a result, Simon said General Growth's equityholders would not suffer the dilution contemplated by the Brookfield investment, and their ongoing interest in the company would be substantially more valuable.

Simon said it estimates that this benefit could be worth at least $895 million, or $2.75 per share based on the most current share count.

In order to ensure that General Growth remains an independent company for all regulatory purposes and to avoid any challenge to the proposed transaction, Simon said it is prepared to agree to limits on its governance rights, eliminating any possible concern about Simon exercising inappropriate or unreasonable influence over the reorganized company.

Co-investors

In addition, if Pershing Square and Fairholme will agree to amend their investment agreements with General Growth to forego the warrants, Simon said it would welcome them as co-investors.

However, the proposed investor said a number of alternative sources of capital are interested in co-investing with Simon on those terms in their stead.

Simon said it would fully backstop the entire amount of any co-investment commitments, without any warrants, as well as backstop an additional $125 million investment in General Growth Opportunities as Pershing Square and Fairholme are currently expected to do.

However, since Simon does not intend to gain control of General Growth under the backstop obligation, Simon said it would agree not only to seek the disposition of any shares issued in connection with its backup commitment as soon as possible, but also to sterilize the interest for voting and control purposes before the disposition.

Simon said its voting interest in General Growth would generally be limited to 20% of the outstanding shares.

No financing conditions

According to the release, there will be no financing condition to Simon's obligations to close the transaction. In comparison, Simon said Brookfield "does not seem to have yet delivered an equity commitment to the shell subsidiary with which GGP contracted and seems to be entirely free to walk away from the agreed deal."

Simon also said its investment would not be contingent on any vote of Simon shareholders.

According to a General Growth news release, the company's board of directors and legal and financial advisers "will study the proposal consistent with its fiduciary duties.

General Growth, a Chicago-based real estate investment trust that owns regional shopping malls, master planned community developments and commercial office buildings, filed for bankruptcy on April 16, 2009 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 09-11977.

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