HAUKE: Letter to David Simon: Be careful with General

To: David Simon CEO Simon Property Group Inc.

Dear David,

So far, your run at acquiring General Growth Properties has fallen a bit short. I am sure you would rather have done this away from the scrutiny of Wall Street, where your cash offer would have had General Growth shareholders tripping over themselves to accept. Instead, the bright glare of the media and investment bankers is turning this into a bit of a circus. But, so far, you’re making a respectable effort.

Retail is always a tough game, made all the more difficult over the last two years as the mightiest consumer nation in the world consumes a bit less. You did the right thing during this time to deleverage Simon a little and hold back on expansion plans. General Growth kept plowing ahead until bankruptcy snagged it last spring. Now, the lure of some sweet properties must be hard to ignore, which is probably what prompted your $10 billion bid. I am sure you saw the potential for other parties to get involved after your announcement, and this is where you have to prove your mettle. You are at a crossroads where many other CEOs have found themselves, with most of them getting caught up in the circus, only to find destruction in their wake.

Brookfield Partners is making a serious attempt to wrest General Growth away from you and General Growth executives like the opportunity to stay in business. I think Brookfield is nuts because these are the same executives that ran the place into the ground, but who am I to ask for some accountability? I also wouldn’t be surprised to see another company come out in the next few days to try to spoil your party even more. Current General Growth stakeholders are doing their best to whip the entire scene into a frenzy.

I imagine you feel something like a rock star these days. The Wall Street Journal and CNBC have been covering this day to day. The sleazy snake-oil salesmen, I mean the investment bankers, are probably showering you with attention and gifts. How many private planes have been sent to fly you to New York? As a fellow CEO who has been in the national media dozens of times, I know the attention can be flattering. If I could offer a tip, though, use the media to your advantage with the deal, not to stroke your ego. As we’ve seen countless times in corporate history, it is easy to lose focus and lose your edge. How much will you pay? The bankers hope the bidding raises your blood, which could cost your entire firm down the road.

Your first pass of $10 billion is obviously not your last offer, but you already have to know the level at which this deal doesn’t make sense. Don’t listen to the bankers who are now showing you absurdly rosy projections of consumer spending growth. Keep the conservative estimates in your front pocket, a place you can get to them easily. This great city of ours applauds what you have done in the last decade. I’m sure Simon Property employees are strongly in your corner. But the most important people in your business life, your shareholders, are depending on you to keep the ship moving along. Don’t cross them for a short-term gain and your 15 minutes. Good luck.

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A quick note about current market conditions: I still believe the upward trend is intact. There was a rough patch a few weeks ago after the New York Stock Exchange slid 10 percent from its January high, but that correction seems to be over. I still get the feeling that people are under-invested and generally fearful of stocks. Although I am a big believer in staying flexible, now is not the time to be overly cautious.•

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@samexcapital.com.