We've all seen the latest WSJ article containing the following:
"Even so, it is a stretch to expect Simon will bid much more than the current market price, the highest it has traded since September 2008. After all, valuing GGP's trailing net operating income at the same level as Simon's suggests GGP stock is worth only about $16, says Kevin Starke of CRT Capital Group."
I have no idea how this guy arrived at that number?!
Simon is currently valued at an implied cap rate of 6.75%.
Applying its valuation to GGP:
2009 total retail NOI = $2.417B
Enterprise value = NOI / implied cap rate = $2.417B / 6.75% = $35.807B
Equity value = Enterprise value - total debt = $35.807B -$27.815B = $7.99B
Stock price = equity value / shares out = $7.99B / 325M = ~$24.60
Also, keep in mind two very important items:
1) SPG's implied cap rate is based off of 2010 NOI which is expected to increase from 2009 levels. GGP's NOI is based on 2009 and not post reorg which is also expected to be higher. Assuming GGP's 2010 NOI would yield an even higher stock price.
2) The analysis above does not include the land business which SPG values at an additional $3 per share. Adding this to our $24.60 estimate, gives us $27.60 total consideration.
Hawk, but they won't get anything unless they bid, right?
I agree they may go partners, either with partners bringing cash or someone to divide with, but they are coming.
BTW The March options and April options are all heavily down today, so people think this is going slow -- July options are stonger
It's more than just the price.
I really don't think SPG wants another 200 malls. There are probably 75-100 malls in the GGP portfolio they really want and the others they would be happy to see in the hands of Westfield or Taubman or Vornado. They would probably not want a new competitor like BAM or Unibail use the GGP assets or platform as a springboard to become a serious competitor, but sharing GGP among the existing players in the industry I think would be fine with them.
I don't think they want to pay a big price for a bunch of centers that they really don't need or want, so they will find a partner or two and agree on a plan to carve this company up among themselves.
Fox, thank you for your response. As I said in my original post, it does make a lot of sense. I am aware of and not a fan of the inevitable dilution with the current plan. I think my points are relatively simple.
1. This may be a stalking horse situation but as it stands today, it is also our only viable exit strategy. Thereby, it is the best we have, right now.
2. The ego-driven bidding war is an interesting perspective but I think we have to consider that, as of now, we don't really have a bidding war. We have ONE bidder and a joint venture "stalking horse." It would be absolutely lovely if another party jumped in but so far, no such luck.
I'd imagine that the downside risk for you is pretty low, in the grand scheme of things as I'm sure you are a super-long with a very low-cost basis. I unfortunately don't have that large of a gap to work with. I think i'm around 8 bucks or so...
I'll add that using SPG stock as part of a deal has the capacity to not only keep SPG's debt to equity ratio in line and protect its credit rating, but it can also be accretive to SPG as well, assuming the share exchange ratio would be favorable to SPG.
Additionally, from the GGP shareowner perspective, having the capacity to defer capital gains (an all cash buyout bid) and own some SPG stock in a deal would be appealing to many, and Simon recognized this in the commentary related to his 10B bid deal structure.
I like most of what you say, except don't be fooled that Ackman is any different than Berkowitz or any of the othe Hedgies who have surfaced in this deal.
He will steal our shares with the same intensity as any of them. Of course, he will not look at it that way, and would rather say "hey commonholders, your position was worth nothing before I showed up, and I am the one who created all of this value, so you should be happy with what you are getting."
It is hard to argue with his logic, but as Billy pointed out, he is compensating himself (and fellow Hedgies) an awful lot.
I also agree with you that Ack is not married to this BAM/GGP deal. He supports it, in my view, because it nullifies any advantage SPG had, more closly approaches market value, and serves as an easy platform for others to out-bid. I doubt he wants to be owning GGP 12 months from now.
A lot of people like to invest in a "follow the Whale" strategy. In this case the Whale has provided a great meal for all followers.
Don't count out UBS. They're a large part to the final solution. Of course Berk,Ack and BAM will get their piece of Equity/Debt pie (smaller piece than many of you think). Maybe some assets will go away as Ackman suggested over a year ago. Possible that some non-strategic assets sold off to BAM as part of final deal.
Think less dilution. Equity isn't the only option.