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Blackstone Could Be Fit for General Growth

General Growth Properties is in the news after rejecting a $10 billion offer from Simon Property Group. Could buyout king Blackstone jump in with a bid?
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Updated to reflect added commentary.



) -- Could

The Blackstone Group

(BX) - Get Blackstone Inc. Report

become a surprise player in the bidding for

General Growth Properties


Investors drove up the Chicago-based mall owner's stock Wednesday, after it rejected a $10 billion bid from

Simon Property Group

(SPG) - Get Simon Property Group, Inc. Report

late Tuesday. The stock pulled back slightly to $12.67 in early trades on Thursday, a slide of roughly 2%. Shares closed on Friday at $9.40, and rose as high as $13.24 in Wednesday's session, before finishing yesterday at $12.92.

"We and our board of directors have given considerable thought to your indication of interest and have concluded based on discussions with other interested parties that it is not sufficient to pre-empt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the company's stakeholders," wrote General Growth CEO Adam Metz in a


to Simon Property.

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So who might those other interested parties be? One obvious candidate is

Brookfield Asset Management

(BAM) - Get Brookfield Asset Management Inc. Class A Report

, which told


Wednesday it has "made a significant investment in General Growth securities or instruments."

Another much talked-about candidate is Sydney, Australia-based

Westfield Group


. This week, the mall owner told analysts merely that it is "watching the situation," involving General Growth, according to



But Barry Vinocur, editor of


, a daily email newsletter based in Novato , Calif., thinks Blackstone could enter the fray for General Growth by teaming up with a buyer that has the necessary operating experience. Blackstone was an aggressive buyer of REITs leading up to the financial crisis, but also showed considerable savvy, for example when it bought

Equity Office Properties

and quickly flipped parts of the giant portfolio to smaller players.

Blackstone has lately shown an interest in retail properties, striking a $320 million deal with

Glimcher Realty Trust


, a Columbus, Ohio-based mall owner, in November.

Vinocur argues an investment in a giant mall owner while U.S. consumers are reeling might be in keeping with Blackstone's contrarian style. He notes, for example, that Blackstone was an aggressive buyer of hotel properties after the Sept. 11 attacks on the World Trade Center in 2001.

Blackstone does have a former General Growth chief operating officer on its real estate team, Gary Sumers, who left the company in 1995. However, when reached in his office at Blackstone, Sumers stressed that he had been gone from General Growth for a long time.

"I don't talk to those people. I don't know anything," he said, before hanging up the phone. A Blackstone spokesman declined to comment on whether the private equity giant has an interest in General Growth.

Even if Blackstone has or could hire executives with the requisite operating experience, Vinocur doesn't think they'd make a $10 billion bet in the current market -- especially given General Growth's high leverage.

At this point, however, Simon remains the clear front runner, according to Kevin Starke, analyst at CRT Capital. Starke doubts Simon will be forced to raise its offer as significantly as the market expects.

"I don't see how anyone can pay a price that validates the current stock price," he wrote via email.

Late Wednesday, Simon fired off a response to General Growth's rejection of its offer that sounded like an attempt to get shareholders and lenders to put pressure on the management of General Growth, which has been operating under bankruptcy protection for nearly a year, to accept Simon's offer.

"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," wrote Simon Property CEO David Simon.

Even if Simon's lowball strategy works, it doesn't rule out a role for Blackstone. Vinocur sees a chance the two could end up getting together on a joint bid.


Written by Dan Freed in New York