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Chris Jones

Massive Merger: Mall Giant Bids for Las Vegas Empire

23 August 2004

Another day, another multibillion-dollar merger.

Wall Street's 2004 push toward consolidation reprised early Friday, and once again the latest corporate megadeal had multiple Las Vegas connections.

General Growth Properties' $12.6 billion bid for The Rouse Co. would give the 50-year-old mall developer control of four of this city's largest and most successful shopping centers, as well as the rights to build two more in ultra-prime Southern Nevada locations.

If approved by Rouse shareholders and regulators, General Growth also would take control of Summerlin, which consistently has ranked as one of the county's top master-planned communities, as well as three other large-scale developments in Maryland and Texas.

While Friday's announcement has widespread national implications, Las Vegas was clearly at the top of the mind of John Bucksbaum, General Growth's chief executive officer, who cited it before several other cities during a Friday conference call announcing the deal.

"We will become stronger in markets such as Las Vegas," Bucksbaum said of the deal, which is expected to close by year's end.

Based in Columbia, Md., Rouse operates more than 150 properties in 22 states including the Strip's Fashion Show mall, where a $1 billion renovation is nearly completed. The company also is renowned for its master-planned communities such as Summerlin and Bridgelands, a new development in suburban Houston.

Chicago-based General Growth owns or manages more than 170 regional malls in 41 states, including Las Vegas' Meadows and Boulevard malls.

General Growth in April also bought The Venetian's Grand Canal Shoppes from the hotel-casino's parent company, Las Vegas Sands Inc., for $766 million. That deal included the rights to build what's effectively a second mall inside The Palazzo, a new resort that Las Vegas Sands will build on vacant land just north of The Venetian.

Based on retail sales averages following that center's debut, the deal's overall value could climb to $1.5 billion.

Anthony Deering, chairman and CEO of Rouse, said by telephone Friday that he does not expect General Growth to change his company's recent direction in Southern Nevada because projects here already are well advanced, particularly the 22,500-acre Summerlin master-planned community.

Deering also was confident that most of Rouse's 175 local employees, who work at Summerlin, Fashion Show and The Howard Hughes Corp. offices, will keep their jobs under General Growth.

"(Bucksbaum) was very clear that community development is something they don't have expertise in. The Rouse people are terrific, and they (at General Growth) hope they can keep them," Deering said.

But the deal should have huge implications for General Growth's retail ambitions in Las Vegas, giving it about 4.5 million square feet of enclosed retail space in the valley.

Should previously announced construction plans for a new Summerlin mall and the new Palazzo shopping center hold, General Growth would own six regional malls here totaling 6.4 million square feet.

That compares to 2.15 million square feet of enclosed retail space at Boulevard Invest's Desert Passage at Aladdin, Simon Property Group's expanding Forum Shops at Caesars and Forest City Enterprises' Galleria at Sunset in Henderson. Another 3 million square feet of mall space is planned near Southern Highlands and in northwest Las Vegas.

Based on recent conversations, Deering expects the deal will expedite Rouse's plans for the 1.2 million-square-foot Summerlin Centre mall near Sahara Avenue and the Las Vegas Beltway, which could open as soon as 2006.

"Now that we've got overall design under way, I think they'll move forward very quickly," Deering said.

"I know their view on new projects because we've talked about them. They have enormous enthusiasm for the Vegas market."

Summerlin's oft-delayed mall widely had been expected to crush business at General Growth's Meadows mall, which has served customers, primarily from the western half of the Las Vegas Valley, since 1978. Under the same owner, Deering said the older mall will have a much better chance to compete.

Other companies might not fare as well, however.

"If one enterprise owns Summerlin Centre, Fashion Show and 700,000 square feet of expanded retail in The Venetian, I think they will dominate the retail market in the valley," Deering said.

Malachy Kavanagh, spokesman for the International Council of Shopping Centers, a New York-based trade group, said Friday's move should benefit General Growth, whose opportunities to expand are limited by a lag in U.S. mall construction.

"There just aren't a lot of places in the United States that aren't currently served by a regional mall," said Kavanagh, who added that only three such shopping centers are slated to open nationally this year.

"Companies like Simon, Westfield and General Growth still want to grow, and they have to do it through acquisitions."

Toward that end, Indianapolis-based Simon Property Group, which owns the Forum Shops at Caesars, in June said it was buying Roseland, N.J.-based Chelsea Property Group for $3.5 billion in cash and stock. That deal would give Simon control of downtown's Las Vegas Premium Outlets mall, which it co-developed with Chelsea, as well as Chelsea's Las Vegas Outlet Center (formerly Belz Factory Outlet World).

Kavanagh said he expects the Rouse deal to raise General Growth's profile in the industry, though he said he doubts it will have much influence on everyday consumers who don't know or care which company owns their favorite shopping center.

"Without a doubt, General Growth has picked up some trophy, iconic malls," Kavanagh said, citing Fashion Show, Boston's Faneuil Hall Marketplace, South Street Seaport in Lower Manhattan and Baltimore's Inner Harbor district, among others.

"This will be the equivalent of five years' worth of acquisitions in one fell swoop," said Bucksbaum, who added that his company shifted its focus from development to acquisitions in 1990 and since has purchased more than 160 properties worth more than $15 billion.

Consumers might see some changes under General Growth, however, including the addition of movie theaters at current Rouse centers, as well as a potential influx of foreign retailers, Kavanagh said.

General Growth bosses said Friday that they hope to introduce several popular European chains to their company's U.S. centers.

Bucksbaum said the deal began to take shape in June, though he later declined to answer whether Rouse initiated the talks or actively had been seeking a buyout partner.

Bernie Freibaum, General Growth's executive vice president and chief financial officer, said the company does not expect antitrust concerns to stall the deal because U.S. mall sales are only one component of a much larger retail segment.

Likewise, Mark Schildkraut, a onetime assistant director with the Federal Trade Commission who is now a partner in the Washington-based Howrey Simon Arnold & White law firm, on Friday downplayed the likelihood of antitrust problems. Mall ownership and development companies, he said, historically have not been scrutinized by antitrust agencies because of widespread competition in those industries.

Offices are the one aspect of Rouse's portfolio that probably will be reclassified as "noncore" assets under General Growth, thereby increasing the chances that such properties soon would be sold under new ownership. Freibaum said. Such a change would have no impact in Southern Nevada, where Rouse already has sold its office holdings.

In December 2000, Rouse sold its Hughes Cheyenne and Hughes Airport centers to Bala Cynwyd, Pa.-based Stoltz Management for about $85 million in cash. Last November, it also agreed to sell its Hughes Center complex to Fort Worth, Texas-based Crescent Real Estate Equities for $223 million in cash and assumed debt. That deal was completed in this year's first quarter.

General Growth shares closed Friday's trading session at $30, down $1.54, or 4.9 percent. Rouse shares rose $16.04, or 31.7 percent, to $66.65.