2 Theories Behind Simon Property Group's Latest Threat

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Includes: BAM, GGP, SPG
by: Todd Sullivan

David Simon has grown tedious. Let’s first go back and read this post from February.

Yesterday's news is that Simon (NYSE:SPG) is once again considering “walking away” from General Growth Properties (NYSE:GGP). I guess this is in case we still do not believe him after his previous threats? The situation is simply one of two scenarios.

1- A blatant attempt to negatively manipulate the stock price in order that shareholders pressure management to take whatever deal he comes up with.

2- Acknowledgment that any “partners” he was trying to line up have not materialized.

Let’s address the folly of #1. Who is he trying to scare into selling out to him on the cheap? Ackman, Bucksbaum, Tilson, Elliot, management who owns material stakes, Sullivan? Who? There are not enough shareholders outside of the major holders to scare into forcing management to take an inferior offer from Simon. David Simon is playing from a playbook that simply is not applicable to the game currently being played. It is the equivalent of trying to run the option offense in the NFL, not going to get it done David.

If #1 isn’t his goal, then why say anything? What purpose does it serve? What is he trying to accomplish? Either make a bid or say you are backing out, otherwise, keep quiet. Everyone knows Simon wants GGP more than any deal he has ever done. Period. Any statement he is making to the contrary is simply untruthful... Unless...

Enter #2.

For a while now we have been hearing Simon was talking to “potential partners” regarding their participation in another (hopefully this time serious) offer for GGP in its entirety. If David Simon is serious in his consideration to walk away, then it HAS to be because those potential partners he was talking to have essentially told him to “get lost”.

Everyone has had access to GGP's data room for about a month now. Everyone knows the potential value of it and everyone has developed their own price for it. Let me ask you a question. If you were the China Investment Corp, Abu Dhabi or John Paulson, or any other of the various entities rumored to be involved, if you could pull off a deal on your own (all of the above entities could) why would you want to have David Simon as a partner?

Simply based on his behavior throughout this entire process to date he is only someone you partner with because he is your only option. If you wanted a partner, wouldn’t you go to the Brookfield Boys (Brookfield Asset Management (NYSE:BAM)), who have behaved with class since day one and attempt to partner with them? Wouldn’t that option seem to hold far less potential for future conflict and aggravation?

You essentially have two very experienced mall management groups bidding for GGP. Brookfield and Simon. Who would you rather be a partner with? Me too….

Since last Fall, David Simon has behaved as though acquiring GGP was his birthright. I can only guess this attitude has been expressed very clearly to potential partners. His public tantrums at every turn when GGP did not bow gracefully in acceptance at his every utterance and overture are evidence enough of that for me. I can also guess this attitude was not received very well by those potential partners.

Do I care if Simon backs out? No. Being honest, I wish he would just put a stop to this infantile drama. Do I care if another bid does not develop? No. I am very happy to own this when it emerges and participate in the future of an independent GGP / GGO combination, very happy…

My guess is that the vast majority of shareholders feel the same way, which is why Simon is pounding his head on the table at not getting the “distressed sale” he thought he would.

Disclosure: Long GGP