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The Myopic Bidding War for General Growth, Where the Winner May Lose Big

Neither the rise of Internet shopping nor the sluggish economy have put a damper on the bidding for the assets of bankrupt mall owner General Growth (GGWPQ.PK). But this seems likely to become one of those auctions for which the term "winner's curse" was coined.

When top mall chain Simon Property (SPG) made a hostile $10 billion bid last week to take over the company's 200 million square feet of retail mall space, General Growth flatly rejected it, saying better offers were coming. Some were annoyed by the rebuff of a deal that would have made General Growth's shareholders whole. Over at Seeking Alpha, blogger Avi Morris sniped, "It seems like General Growth forgot they are still trying to emerge from bankruptcy." But General Growth wasn't kidding: word is that Canadian company Brookfield Asset Management (BAM) plans to top that bid. Simon may counter by teaming up with another funder, possibly asset manager Blackstone Group, the NYT's Dealbook blog reported.

Wait just a second. The U.S. has 102,000 shopping centers that account for more than 7 billion square feet of retail space -- about half of all retail space in the nation. In this era of easy Internet shopping, fewer mall-rat teens, and simple-living trends, we probably have far more malls than we need. The down economy may be the final factor that combines with these lifestyle and demographic trends to touch off a major consolidation in the mall sector. It seems doubtful that recession-chastened Americans will resume their free-spending ways anytime soon -- possibly, not ever again. Whoever emerges victorious in the bidding for General Growth could have a costly mess on their hands. Best case, even if a healthy economic rebound arrives, it's still likely that a good number of underperforming GG malls will need to be closed. After all, the company ended up in bankruptcy for a reason. These bid prices may be setting the stage for hefty goodwill write-offs down the line, as the price paid collides with the new retail reality. The loser in this bidding war may end up grateful a few years down the road for finishing out of the running.

Photo source: Flickr user my big blue gorilla, CC 2.0