Simon Property offers $10 billion for General Growth

NEW YORK (Reuters) - Simon Property Group Inc sought to pluck General Growth Properties out of bankruptcy on Tuesday, offering to pay $7 billion to creditors and nearly $3 billion to shareholders in a deal that would combine the two largest U.S. shopping mall owners.

The offer, backed by General Growth's committee of unsecured creditors, is a pre-emptive strike, coming just a week before a bankruptcy court hearing where General Growth was expected to ask for more time to offer its own plan for emerging from bankruptcy. By making the offer public, Simon is trying to pressure General Growth to negotiate.

Simon, the biggest U.S. mall operator, may not be the only suitor. Brookfield Asset Management , which has been buying up General Growth unsecured debt, also has expressed an interest in General Growth, the No. 2 mall landlord.

Chicago-based General Growth, which owns such valuable properties as South Street Seaport in New York and Fashion Show in Las Vegas, did not immediately return a call for a comment. It has previously said that it prefers to emerge as a stand-alone company.

Brookfield spokesman Denis Couture declined to comment. Any deal would have to be approved by the bankruptcy court.

Indianapolis-based Simon owns or has an interest in 382 properties in North America, Europe and Asia. These include such well-trafficked malls as Roosevelt Field on New York's Long Island and Sawgrass Mills Circle near Fort Lauderdale, Florida.

At the end of the year, Simon had access to more than $7 billion in cash and has been able to tap the unsecured bond market. Simon says it plans to finance the deal with cash on hand, existing credit facilities and by bringing in institutional investors for joint ventures on some of the properties.

General Growth filed for Chapter 11 protection in April in the biggest real estate bankruptcy in U.S. history. The company was weighed down by debt from its 2004 acquisition of Rouse Cos, which brought it top-quality malls as well as Rouse's master-planned community business.

Under Simon's offer, the unsecured creditors, holders of its trust preferred securities, exchangeable senior notes, Rouse bonds, and lenders under its credit facilities would receive full recovery of their bonds plus accrued interest and dividends.

"Full cash payment to all unsecured creditors and the substantial recovery for equity bond holders that Simon has proposed would be a great result," Michael Stamer, counsel for the unsecured creditors committee, said in a statement.

William Ackman of Pershing Square Capital, who controls 25 percent of the General Growth shares and who is on the board was not immediately available for comment. Ackman has said the stock was worth between $24 and $43 per share.

Rouse's 5.375 percent notes due in 2013 rose to 105.25 cents on the dollar on Tuesday, yielding 3.9 percent, versus 101 cents on Thursday, the last most significant trade, when those bonds yielded 5 percent, MarketAxess data showed.

Simon's bonds, which are investment grade, fell slightly as the yield relative to Treasuries were up 7 percent. General Growth's bonds were not active.

The deal calls for General Growth's equity holders to receive $6 per share, or roughly $1.9 billion, plus a stake in the master-planned communities General Growth owns, for about $3 per share.

General Growth has refused to negotiate, Simon said.

"We have not received a substantive response to this offer from GGP or its advisers, nor any indication that you are prepared to enter into serious discussion so as to make our offer available to your shareholders and creditors," Simon wrote in a February 16 letter to General Growth's board of directors.

General Growth shares were up nearly 25 percent at $11.72 on Tuesday afternoon.

As of January 27, the General Growth has been successful in renegotiating $9.9 billion of property loans, with $3.3 billion still under negotiation for extensions or to be returned to lenders if a deal cannot be reached.

Lazard Ltd , JPMorgan and Morgan Stanley are financial advisers to Simon. Wachtell, Lipton, Rosen & Katz is legal adviser.

Simon shares were up 3.8 percent at $74.71 on the NYSE.

(Reporting by Helen Chernikoff and Ilaina Jonas; additional reporting by Dan Wilchins and Dena Aubin; Editing by Lisa Von Ahn, Gerald E. McCormick and Matthew Lewis)

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