General Growth Properties Inc. yesterday defended its plan to purchase the Rouse Co. for $7.2 billion in cash during its first public discussion with analysts since the sale was announced in August.
From the start, the financial community declared the sale a boon to Rouse, which built Columbia and pioneered enclosed malls and "festival halls" such as Baltimore's Harborplace. But while Rouse's stock soared, shares of Chicago-based General Growth fell as critics pummeled it for paying too much and assuming $5.4 billion of Rouse debt.
The deal, valued at $12.6 billion, will mark the most ever paid for a real estate investment trust if it closes as expected in mid-November.
General Growth's stock has since rebounded, closing at $33.18 yesterday. Still, chief executive John Bucksbaum chided critics, during a morning call on third-quarter earnings, for "missing the point" of the acquisition.
"I'm afraid that many people are overlooking benefits that accrue to the [General Growth] portfolio as well as the Rouse properties in this acquisition," Bucksbaum said. People are concentrating on the financial analysis of Rouse assets "instead of understanding the broad benefits to our company."
With 179 owned or managed malls in its portfolio, General Growth is already the nation's second-largest mall owner. The company's third-quarter net income rose 4 percent year-to-year, to nearly $64 million on $397.5 million of revenue. If the deal closes, General Growth will expand from 41 states into 44 states, Bucksbaum said. It will have 69 malls in 21 of the nation's top 25 markets, he added.
Through Rouse, General Growth also adds upscale, well-known malls to its portfolio of mid-level centers. The companies' combined portfolio will attract 2.5 billion shoppers, Bucksbaum said. And that visitor count, he added, will entice more companies to advertise on billboards in General Growth malls and provide a one-stop shop for retailers looking to introduce new concepts throughout the country.
Analysts pressed company executives about financial and legal ambiguities that could disrupt the deal.
Earlier this month, Rouse and General Growth went to court in Delaware to block heirs of the billionaire Howard Hughes from derailing the sale. The Hughes heirs voiced concern about their financial stake in Rouse and threatened to "evaluate all of the rights and remedies" available to them.
Rouse said it does not expect the disagreement to delay the sale. But it asked a Delaware court to declare the sale valid. Yesterday, General Growth Chief Financial Officer Bernard Freibaum said he wants to resolve any differences out of court because "we are not fond of litigation."
"It's possible [the heirs] could do some things they haven't done yet that could have a bearing" on the closing, he said. "I'm not predicting it nor do I expect it. I merely restate that it's possible."
The executive was also asked about tax issues Rouse recently disclosed it is working on with the Internal Revenue Service related to its status as a real estate investment trust. It asked the IRS to take "corrective actions," or else Rouse might not satisfy a condition of the merger. If so, Rouse said it would pursue other alternatives.
Freibaum said the tax issue wasn't one General Growth could affect, but he said "we're operating under the assumption that the deal can and will close."