Simon may buy assets of bankrupt mall owner General Growth

Simon Property Group Inc., the U.S. shopping mall owner with more than $4 billion in cash, hired Lazard Ltd. and Wachtell, Lipton, Rosen & Katz as the company considers buying assets of bankrupt General Growth Properties Inc. General Growth jumped 36 percent.

Lazard specializes in financial advice and asset management and Wachtell focuses on mergers and acquisitions. General Growth has more than 200 malls in 44 states. Les Morris, a spokesman for Indianapolis-based Simon Property, confirmed the hirings.

General Growth filed for bankruptcy protection in April and David Simon, chairman and chief executive officer of its biggest rival, acknowledged within days that he had tried to buy some of its properties. Simon Property owns or has stakes in 387 retail centers in North America, Europe and Asia and has raised capital this year as Chicago-based General Growth reorganizes.

Locally, General Growth owns Lincolnshire Commons in Lincolnshire, Spring Hill Mall in West Dundee, Northbrook Court in Northbrook, Water Tower Place in Chicago and Oakbrook Center in Oak Brook.

"It's not surprising," James Sullivan, an analyst with Green Street Advisors in Newport Beach, California, said of Simon Property's interest. "The mall business in the United States is very concentrated. There are very limited opportunities to buy big portfolios and General Growth could be the biggest prize of all."

General Growth rose $1.55 to $5.82 at 4 p.m. in over-the- counter trading. The shares reached their highest price since October 2008. Simon Property rose $3.40, or 4.7 percent, to $75.58 in New York Stock Exchange composite trading.

General Growth has until the end of February 2010 to submit a reorganization plan to the bankruptcy court, Sullivan said in a Nov. 4 note to investors. Even then, it won't be easy for Simon Property to buy the assets, he said.

"Between now and the end of February, Simon has no standing in the bankruptcy court and it's only when General Growth gets much farther into the process of refinancing its secured debt and its unsecured debt and its claims on the equity" before Simon might be able to bid, Sullivan said.

Simon Property has been raising money through debt and equity sales and preserving capital by paying 80 percent of its dividends in stock. The mall owner in August sold $500 million of senior unsecured notes. It had more than $4 billion of cash as of Sept. 30, counting its share of money in joint-ventures. It also had access to $3 billion in credit, according to regulatory filings.

"We're a logical buyer," David Simon said in a Sept. 15 interview on Bloomberg Television, of General Growth. "There's a lot we could do with those properties."

Morris declined yesterday to comment further on Simon Property's plans.

General Growth "may eventually provide SPG the opportunity to expand its footprint," said Sullivan in the note to investors. Simon Property "certainly has the means to pursue an aggressive external growth initiative."

General Growth had been trying to sell assets including Boston's Faneuil Hall and the South Street Seaport in New York City when it filed for Chapter 11 bankruptcy protection. The company was caught in the credit crunch, unable to refinance debt amassed making acquisitions. It bought Rouse Co. for $11.3 billion in 2004.

"Paying the highest price was not the fatal flaw," Sullivan said in April. "The fatal flaw was financing this giant purchase exclusively with debt."

General Growth's net loss widened to $117.8 million in the third quarter, or 38 cents a share, from $20.9 million, or 8 cents, a year earlier. Funds from operations fell 44 percent to $100.2 million. FFO is a cash flow measure used by real estate investment trusts. It excludes depreciation and other items and doesn't conform with generally accepted accounting principles.

David Keating, a spokesman for General Growth, declined to comment yesterday on Simon Property's hirings.

The company is continuing to work on the reorganization plan, he said. "It's always been our intention to move diligently through the process," Keating said.

General Growth's history reaches back to 1954, when brothers Matthew and Martin Bucksbaum expanded the family's grocery business by building the Town and Country Center in Cedar Rapids, Iowa, one of the Midwest's first regional shopping malls. In October 2008, the company was turned over to someone outside the family when it replaced CEO John Bucksbaum, Matthew's son, with Adam S. Metz.

Simon Property has remained a family run enterprise. David Simon is the son of Melvin Simon, who formed the company with brothers Herbert and Fred in 1960, the same year it opened its first shopping center in Bloomington, Indiana. Melvin Simon died in September at the age of 82.