Why General Growth Should Accept Simon Property Group's Offer

Includes: BAM, GGP, SPG
by: Amit Shah

General Growth Properties (NYSE:GGP) management has a responsibility to its shareholders to accept Simon Property Group's (NYSE:SPG) offer of $18.25/share over the Brookfield/Pershing Square/Fairholme Capital Management offer of $15/share for 70% of the company. As a GGP shareholder, I would love to hold on to the company because it's probably worth double the $16.78/share it currently trades at. However, Brookfield/Pershing Square/Fairholme are buying 70% of the company at $15/share so current shareholders are left with little ownership anyway. I'd rather take SPG's 22% premium offer over the Brookfield offer than be taken for a ride by these other investors who argue I am getting a great deal by holding only 30% of the company. If Brookfield's offer is on such attractive terms for current investors, than it must be an INCREDIBLE DEAL for Brookfield (NYSE:BAM).

GGP management should focus on maximizing the value of the company for shareholders, not trying to keep GGP an independent company so they can save their jobs. SPG's offer is far better than Brookfield (22% higher bid) and I think management should let Brookfield/Pershing Square/Fairholme Capital Management know that if they do not up the offer and get rid of the warrants in the deal, then they will move forward with Simon Property Group.

I prefer GGP remaining an independent company, but it should be a fair deal for all equity investors. The warrants in Brookfield's offer are dilutive to shareholders and should not be in the deal. Also, the price at which they are buying shares should be considerably higher than the $15/share they are offering. Pershing Square estimates GGP equity per share is worth between $24 - 41/share so paying $15 plus receiving warrants is an incredible discount to the equity value/share.

The Brookfield offer and management's support of the offer is pathetic at best and they should accept the offer that gives shareholders greater value. I cannot see how selling 70%+ of the company at $15/share is better than selling 100% of the company at $18.25 unless you are just stupid. The remaining 30% of the company would have to be worth approximately $26/share for the Brookfield offer to match SPG's offer. Given that the stock price is currently $16.78, I don't really want to make that bet.

Simple math to

.70(15) + .30(x) = 1.00(18.25)
x = $25.83

Why would any shareholders of GGP in their right mind except for Pershing Square/Brookfield/Fairholme want to accept the Brookfield offer over SPG? The math makes NO SENSE!!!

Disclosure: Long GGP