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Clash of the Titans

The last 30 days have provided some remarkable theater. It's not often that you get to see the two largest companies in an industry publicly trade barbs. Yet that's exactly what we've seen in a war of words between Simon Property Group and General Growth Properties over the latter's plans to emerge from bankruptcy. (See p. 56 for the highlights from the battle so far.)

Much of the war has played out online in the form of public letters sent between the two firms. But there's been a lot more, including television appearances, sharp words at industry conferences and the climax so far — a lively set of arguments at a bankruptcy hearing in New York in early March.

Simon is trying to pressure General Growth to accept its buyout offer, which values General Growth at roughly $9 per share. Going public is partly aimed at swaying General Growth's creditors and shareholders to get behind the plan. General Growth has resisted, however. Many think Simon is trying to force through a low-ball offer when General Growth is worth quite a bit more.

Indeed, General Growth's own proposal for a restructuring facilitated by an infusion of capital from Canadian firm Brookfield Asset Management values the firm at $15 per share.

Simon has insisted its offer is superior and blasted General Growth's management. The response from Chicago has been that General Growth will consider all offers and wants to complete its reorganization or sale in a more orderly fashion.

For Simon's part, the stakes are clear. This could be a once-in-a-lifetime opportunity to turn what is already the most dominant regional mall REIT to an unparalleled titan. David Simon has a chance to take what his family has built over a generation and qualitatively transform it into the equivalent of Microsoft for the regional mall sector.

Meanwhile, General Growth has valiantly pulled itself back from the brink — a testament to the steady hand of its executive management team in seemingly impossible conditions. The REIT is on the verge of emerging from bankruptcy relatively unscathed. That's something not many people thought possible.

Most investors bailed on General Growth when it filed for bankruptcy, sending its stock down to about $0.30 per share, which relegated it to trading over the counter. A year later, the firm's share are now trading at more than $15.00 per share. It became one of the rare companies in bankruptcy to return to the New York Stock Exchange before completing its restructuring. Anyone who had made a bet on General Growth in its darkest days — such as Pershing Square Capital's William Ackman — looks like a genius today.

And for the Bucksbaum family that built the firm, there's pride at stake as well. There's no question that you'd want to emerge from this situation as an independent entity — rather than as an acquisition by your principal rival.

For now, General Growth has the upper hand. The bankruptcy court has given it a four-month extension on its exclusivity period. This will give it the necessary time to either finalize its plan to recapitalize and split the firm in two or conduct an orderly auction.

It will be an interesting ride to follow.

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