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It didn’t take long for Simon Property Group to respond to the proposed deal with Brookfield Asset Management that General Growth Properties announced earlier today.

Here’s the text of the latest missive:

Simon Responds to Inferior and Highly Conditional General Growth Proposal

INDIANAPOLIS, Feb 24, 2010 /PRNewswire via COMTEX/ — Simon Property Group, Inc. (NYSE: SPG) today issued the following statement in response to the highly conditional recapitalization proposal announced by General Growth Properties, Inc. (OTC: GGWPQ.PK):

“General Growth’s proposed recapitalization amounts to a risky equity play on the backs of its unsecured creditors. While continuing to block the immediate and certain 100% cash recovery provided by Simon’s offer, General Growth has preempted its own self-proclaimed ‘process’ in favor of a highly speculative and risky plan to attempt to raise $5.8 billion of new capital in today’s uncertain markets — including $3.3 billion of dilutive new equity, $1 billion in asset sales and $1.5 billion in new debt — on top of the approximately $28 billion it already owes. Simon is providing $10 billion of real value — $3 billion to shareholders as well as $7 billion to creditors — as compared to a complex piece of financial engineering that is so highly conditional as to be illusory.”

Simon’s offer is far superior to the General Growth proposal in many ways, including:

* $9 billion of cash upfront vs. the General Growth plan which offers only $2 billion in cash and the hope of additional cash down the road, subject to highly uncertain market conditions.

* 100% immediate and certain cash recovery to unsecured creditors vs. the General Growth plan which would likely result in unsecured creditors receiving most of any recovery at some point down the road in the form of equity in a highly leveraged, capital constrained entity. In addition, the inevitable sale of shares by creditors who receive stock would put downward pressure on the value of General Growth shares.

* Cash value to equity holders with no dilution vs. the General Growth plan which would result in significant dilution of General Growth shareholders — who would be left with two speculative equity securities that are likely to underperform.

* Fully addresses claims of unsecured creditors vs. General Growth’s proposal which turns the bankruptcy process on its head by favoring equity holders at the expense of creditors.

* No financing condition vs. the combination of the massive required capital raising and asset sales in the General Growth plan which amount to a financing condition for the majority of potential cash recovery for creditors.

* Potential for equity holders and certain creditors to elect SPG stock in lieu of cash, providing certainty and upside potential in an established equity security of an S&P 500 company that has historically outperformed. Stakeholders who elect SPG stock will be investors in an entity that has enhanced growth prospects through superior management, synergies and access to capital to realize value creation.

Updated at 2:18 PM

The Wall Street Journal is reporting that General Growth will unveil a plan at next week’s bankruptcy court hearing that would split the company in two. It will present this plan as an alternative to selling the firm wholesale to Simon.

Updated: General Growth has released the details.

General Growth Properties, Inc. (”GGP”) today announced that it has reached an agreement in principle with Brookfield Asset Management Inc., one of the world’s largest real estate investors and asset managers, to invest in a proposed recapitalization of GGP at a plan value of $15.00 per share and provide par plus accrued interest to unsecured creditors. The $2.625 billion proposed equity commitment from Brookfield is not subject to due diligence or any financing condition and is expected to create a floor value for the purpose of raising additional equity for the company. The plan is subject to definitive documentation, approval of the Bankruptcy Court and higher and better offers pursuant to a bidding process to be approved by the Bankruptcy Court.

The complete term sheet for the proposed plan with Brookfield is available on GGP’s website at http://www.ggp.com/company/Default.aspx?id=97.

The proposed plan is designed to maximize value for all GGP stakeholders and enable a restructured GGP to emerge from bankruptcy on a standalone basis with a diverse portfolio of high-quality income-producing assets, strong cash flow and a solid balance sheet capitalized principally with long-term non-recourse debt.

Under the terms of the proposed plan:

* GGP’s existing shareholders will receive one share of new GGP common stock with an initial value of $10.00 per share, plus one share of General Growth Opportunities (”GGO”) with an initial value of $5.00 per share, for total consideration of $15.00 per share (see description of GGO below under “Terms of the Brookfield Investment and Proposed Recapitalization”)
* Unsecured creditors will receive par plus accrued interest
* Brookfield will invest $2.5 billion at $10.00 per share for new GGP common stock and up to $125 million at $5.00 per share for GGO common stock

“This proposed plan offers significant value for all of our stakeholders,” said Adam Metz, Chief Executive Officer of GGP. “It is designed to allow GGP to deliver a minimum of $15.00 per share in value to our existing common shareholders, while providing our unsecured creditors with par plus accrued interest. The Brookfield-sponsored recapitalization — coupled with the more than $13 billion of restructured debt, our compelling scale as the second-largest regional mall owner, our fortress assets and a business plan that focuses on further deleveraging the balance sheet and building liquidity — provides a strong financial foundation for the future. In addition, GGP shareholders will be able to participate in the value-creation opportunity presented by this plan.

“We have tremendous respect for Brookfield and its management team. We believe Brookfield will add substantial value to both enterprises over the short and long term through its asset management expertise and access to global institutional capital sources. We look forward to welcoming Brookfield as a significant shareholder in the company following our emergence from Chapter 11,” continued Mr. Metz.

Terms of the Brookfield Investment and Proposed Recapitalization

Under the terms of the proposal, Brookfield will invest $2.5 billion in cash in GGP in exchange for GGP common stock, thereby providing sufficient liquidity to fund GGP’s bankruptcy emergence needs. Brookfield will own approximately 30 percent of GGP and have the right to nominate three directors. This cornerstone investment will provide the flexibility for GGP to pursue additional capital-raising alternatives up to a total of $5.8 billion, including the issuance of new equity, asset sales and limited new debt issuance. Brookfield has agreed to assist GGP in raising the balance of this capital using its relationships with global institutional capital sources.

As part of the restructuring, GGP intends to distribute to GGP shareholders shares in GGO, a new company that will own certain non-core assets, such as all of the company’s master planned communities and landmark developments like South Street Seaport and others. A shareholder must be invested in GGP prior to the recapitalization in order to receive a dividend of GGO. These assets produce little or no current income but have the potential for significant long-term value. GGO plans to raise $250 million through a rights offering at $5.00 per share, with Brookfield backstopping $125 million of such offering.

“We are excited about the opportunities this recapitalization creates for our company and all of our stakeholders,” added Thomas H. Nolan, Jr., President and Chief Operating Officer of GGP. “GGP has an extremely strong portfolio of successful properties, while GGO will have a large portfolio of opportunistic assets that have substantial long-term value, as well as certain assets where we believe value can be created through restructuring. By creating two separate companies, we enable both companies to manage their core strengths, take advantage of different market opportunities and appeal to distinct groups of investors with their own investment criteria. Our shareholders will be able to participate in the expected future value creation of both of these companies.”

Bid Protection and Path to Completion

As consideration for acting as “stalking horse” in the company’s process to raise capital, Brookfield will be granted seven-year warrants to purchase 60 million shares of existing GGP common stock at an exercise price of $15.00 per share. The warrants are intended to provide compensation to Brookfield for its financial commitment. Brookfield will not receive any other consideration or bid protection, including any break-up fee, expense reimbursement, commitment fee, underwriting discount or any other fees.

The companies expect to move promptly to execute a definitive agreement and file a motion seeking appropriate Bankruptcy Court approval. GGP will also ask the Bankruptcy Court to approve bidding procedures with respect to the solicitation of proposals superior to Brookfield’s including, but not limited to, the sale of the company.

Until the warrants are approved by the Bankruptcy Court, Pershing Square Capital Management is providing interim protection to Brookfield. If Brookfield’s investment in GGP is not made, and the company completes a transaction with another party at a per share value above $12.75, Pershing Square will be obligated to pay Brookfield 25 percent of its profits from its investment in GGP above $12.75 per share. GGP will not be required to reimburse Pershing Square for any amounts paid pursuant to this agreement.

This agreement follows GGP’s successful restructuring – or agreements to restructure – more than $13 billion of secured mortgage debt and the emergence from bankruptcy of more than 200 subsidiary debtors owning 108 properties.

UBS Investment Bank and Miller Buckfire & Co. LLC served as financial advisors to General Growth Properties, and Weil, Gotshal & Manges LLP acted as legal counsel to the company. Goldman Sachs & Co. and Barclays Capital served as financial advisors to Brookfield, and Willkie Farr & Gallagher LLP acted as legal counsel to Brookfield.

The plan is vaguely reminiscent of the “good bank/bad bank” schemes that were discussed last year as a potential way of dealing with bad debts on bank balance sheets. General Growth’s best assets would end up in one firm while its riskier assets would end up in another. The firm with the stronger assets would then tap public markets to help it pay down its debt.

Mall owner General Growth Properties Inc. is expected to unveil a plan Wednesday to exit bankruptcy this year by splitting the company in two, with Canadian property investor Brookfield Asset Management Inc. pledging $2.63 billion to the effort, said several people familiar with the matter.

General Growth and Brookfield envision the split creating both a pristine company that owns nearly 200 high-quality malls and a smaller company with riskier holdings that appeal to investors willing to gamble for higher returns.

The complicated plan, drafted partly by activist investor and General Growth board member William Ackman, is meant to top a $10 billion buyout bid that rival mall owner Simon Property Group Inc. made last week. General Growth will argue that its plan, which is dependent on selling additional stock, offers its creditors more value than Simon’s all-cash offer.

If General Growth’s creditors and a bankruptcy judge approve the plan, General Growth would then sell additional new shares in the larger company in the coming months to raise capital for paying some of its debts.

If General Growth splits, the larger of the companies, which will retain the General Growth Properties name, would hold 170 to 180 of the company’s more than 200 malls, according to people familiar with the plan. Brookfield has pledged to buy 30% of that company’s shares at a price of $10 per share for total consideration of roughly $2.5 billion.

The smaller company, called General Growth Opportunities, would include many of General Growth’s struggling or less valuable assets, these people say. Those include roughly 28 malls, including several that General Growth had considered forfeiting to lenders because they are worth less than their mortgage balances. It also includes General Growth’s residential-development division, parcels of raw land and its headquarters building in Chicago.

…

The Brookfield plan values General Growth at $15 per share, but unlike Simon’s all-cash buyout offer, it relies heavily on selling massive amounts of new stock in the coming months. The Brookfield plan values General Growth at about $4.5 billion in equity value, compared with $3 billion from Simon. But Simon is offering creditors more cash over stock and also has been cutting deals with Blackstone Group LP and other deep-pocketed partners in case it decides to raise its bid.

Both plans would repay the company’s $7 billion in debt, though the General Growth plan would likely convert some of that debt into stock, said these people.

…

While Simon’s bid values General Growth’s equity at $9 per share and the Brookfield plan essentially values it at $15, a major difference for creditors in the bankruptcy case will be that Simon’s plan offers to pay them entirely in cash, if they so choose. In contrast, the Brookfield plan relies on selling additional General Growth stock to pay debts and convincing some unsecured creditors to convert their claims to stock.