Simon Property Group recently made news by bidding to make two big acquisitions. In December, it agreed to pay $2.33 billion (including debt) to acquire Prime Outlets from Lightstone Group. More recently, it bid $10 billion to acquire its biggest rival, General Growth Properties, which is currently in bankruptcy proceedings. Simon’s moves have attracted the attention of the FTC, which has already reached out to retailers for input on the potential mergers.
What you need to know: In analyzing potential mergers, the FTC focuses on the impact of the transaction on customers; fewer competitors may mean less competition and higher prices. In the case of the potential Simon acquisitions, the FTC will be interested in the impact on tenants, including whether the proposed mergers will affect the options available to tenants and rents charged. As part of its inquiry, the FTC is likely to reach out to key retail tenants that may be affected by the mergers. In fact, the FTC has already contacted key retailers that may be affected by the Prime Outlets merger. The FTC will likely ask retailers what alternatives they have to the relevant shopping centers, whether retailers are concerned about the proposed transactions, and whether the merging parties have market power (i.e., the power to raise rents directly, or through reducing landlord support for tenant improvements).
Participating in this initial inquiry is voluntary. (At later stages, the FTC could compel disclosures through “civil investigative demands.”) It is important to have a plan before the FTC comes calling. Retailers can decide (1) not to respond, (2) to respond with factual information only, or (3) to also provide its views on the merits of the transaction.
Statutory protections prevent the FTC from divulging information obtained during its investigation. However, if the FTC challenges the Simon transactions, tenant statements would be subject to discovery.
What you can do: Be prepared. Retailers should have a game plan, and should make a decision early on whether to share their competitive concerns with the FTC. Retailers should also take steps to protect the confidentiality of their communications.
Additional content for this post provided by Randy Smith and Olivier Antoine.