simon ggp love letters:
Feb 18, 2010
The Simon-GGP love letters
By: Robbie Whelan
Simon Property Group LP’s courtship of bankrupt retail giant General Growth Properties, which owns 10 of Baltimore’s biggest malls, is playing out, a la Abelard and Heloise, in a series of deftly written letters. With each exchange, the proposed, $10 billion takeover, which would create a mega-company that would own somewhere between 25 and 40 percent of all malls in America, becomes more and more tawdry.
It all started with an unsolicited purchase offer from Simon, made public in a letter to GGP’s board this week, after a week of negotiations drew no “substantive response,” according to SPG CEO David Simon. The Wall Street Journal called this type of merger offer — technically a hostile bid — a “bear hug”, or an offer made public with the specific intention of pressuring the acquisition target to accept a deal even though the terms are unfavorable to the company.
The way it works is, Simon shows its plumage by saying, “Our offer is the best offer out there, and your creditors will come out unscathed, but only under our deal.” Simon then hopes that by making the letter public, GGP’s creditors will be impressed, or at least anxious enough to urge GGP to accept the deal. To us, it sort of sounds like classic dating politics. A girl is not responding to your romantic overtures, so you tell all her friends that you’re interested. Maybe you even buy them drinks, so that word might get around that hey, this guy’s not so bad after all!
But Alexander D. Goldfarb, an analyst with Sandler O’Neill, told us that GGP is no pushover, and that the company will likely play hard-to-get. “I would still accept them to play a pretty good game,” he said in a Tuesday Daily Record article.
He was right. Late Tuesday, GGP fired back with a letter of its own: We don’t like your style. We think we could do better. We’re just not that into you. Take some time, GGP said, get to know us, our interests, things to make us smile, what numbers to dial… The letter read:
We believe the information we would provide to you as part of this process will enable you to better understand the Company, get to a higher valuation, and provide a fully documented offer.
Simon’s response? Oh, snap. They did not just go there, telling us that they’re a more expensive date than we thought! So SPG rattled off another passive-aggressive love note late Wednesday. In that letter, which you can read in full here thanks to the good work of Jay Rickey over at CityBizList, Simon shifts to the aggressive courtship tactic that so many men fall back on, sometimes for good, sometimes for bad: telling the object of your desire that she’s not going to do any better than you, that you’re the best option she’ll see, and that she should really think twice about turning you down. Simon wrote to GGP’s CEO, Adam Metz:
…[Our offer] is far superior to any third-party proposal or stand-alone plan that would result from your “process.” … Given the clear risks of pursuing an alternative plan, the current state of the retail industry and your company’s past history of risky financial choices, your lack of urgency should deeply concern creditors and shareholders. Time is passing and General Growth is inappropriately speculating with creditors’ money - the company’s high leverage means not only that equity value could be destroyed by relatively small market movements, but that the value of the unsecured debt is also at risk.
Now if I were a late-night radio love doctor and not a business reporter, I would say that Simon really crossed the line here with that last remark. You can tell a girl she’s making a mistake by turning you down, but brother, where do you get off telling her how to live the rest of her life? The snipe about GGP “inappropriately speculating” with other people’s money is biting, and given, it’s meant for the eyes and ears of GGP creditors and investors, not GGP’s board itself, but the tone here has clearly taken a more hostile turn.
Waiting with baited breath to see if and when these two lovebirds will get together!
UPDATE:
It’s heating up again! At 3 p.m., General Growth CEO Adam Metz sent a curt, 4-sentence “Dear John” letter (or, technically, a “Dear David” letter) to Simon Property Group CEO David Simon. It reads as follows:
Dear David,
Reference is made to your letter dated February 17. As we have previously stated, our objective is to maximize value for the company and its stakeholders and we are engaging in a process that is intended to accomplish that result in an expeditious manner. Understandably, your objectives are not aligned with ours. We hope you will, nonetheless, participate in our process.
Sincerely,
Adam Metz
Chief Executive Officer
General Growth Properties, Inc.
What do you think, all you Don Juans and Femme Fatales out there in Heartbreak Land? Should Simon take this brush-off lying down, or is Metz just being a tease?
(Photo of General Growth’s Harborplace, clearly
