Mergers & Acquisitions and Commercial Real Estate and Bankruptcy and Simon Property Group and Real estate deals and Real Estate & Retail

Report: Brookfield plans bid for Simon target General Growth

February 23, 2010

Brookfield Asset Management Inc. plans to bid for a stake in General Growth Properties Inc., beating an offer by Indianapolis-based Simon Property Group Inc. for the bankrupt shopping mall owner, the Wall Street Journal reported.

The bid would allow Chicago-based General Growth to exit Chapter 11 bankruptcy as a standalone company with Brookfield, the Toronto-based real estate investor, as its largest shareholder, the newspaper reported on its Web site, citing people familiar with the plan.

Simon, the largest U.S. shopping mall owner, has offered to purchase its biggest rival in a deal that would give equity investors about $9 a share and repay unsecured creditors in full. General Growth said the bid, made public on Feb. 16, was too low and would invite other potential buyers to make offers.

Brookfield owns almost $1 billion in General Growth debt, two people with knowledge of the company’s holdings said last week. General Growth may raise $1 billion to $2 billion from public markets—or more, were investor demand sufficient—to fund its exit from bankruptcy, according to one of the sources, who asked not to be named because the talks are private.

Brookfield would invest at least $2 billion, making the company the largest buyer in General Growth’s stock sale, the Journal said. Brookfield’s plan may be announced as soon as this week, the newspaper said.

Denis Couture, a Brookfield spokesman, declined to comment. David Keating, a spokesman for General Growth, said he had no immediate comment.

General Growth’s shares rallied past Simon’s buyout offer to close Monday at $12.76, signaling that investors expect a higher bid. William Ackman’s Pershing Square Capital Management LP, General Growth’s largest shareholder, in December issued a 54-page presentation that said the stock is worth $24 to $43. Pershing Square, based in New York, owns a 25 percent economic interest in General Growth, including 7.5 percent of its shares.

Based on the current valuations for U.S. mall owners and Simon and Brookfield’s “strong strategic and financial motivations,” General Growth is probably worth $11 to $18 a share, Green Street Advisors Inc., a Newport Beach, California- based research company, said in a Jan. 13 note.

General Growth, the owner of New York’s South Street Seaport and Boston’s Faneuil Hall, filed the biggest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree.

Brookfield said in a Feb. 19 letter to shareholders that it “acquired a substantial amount of defaulted bank debt issued by General Growth Properties” at a discount to par value. In a fourth-quarter earnings conference call that day, Brookfield Chief Executive Officer Bruce Flatt and other executives declined to discuss General Growth.

Flatt said in his Feb. 19 letter that Brookfield believes “acquiring assets through distress situations offers one of the few ways to acquire assets at meaningful discounts to their intrinsic value.”

Brookfield owns more than 100 office buildings; 2.9 million acres of timber and agricultural land in Canada, the U.S. and Brazil; apartment complexes; 20 shipping terminals in Europe and Australia; 164 hydroelectric plants; railroads in Australia; natural-gas pipelines in the U.S.; and a property-brokerage business with almost 40,000 brokers in about 2,000 offices in Canada, the U.S. and the U.K.

Brookfield last year assembled a $5 billion equity group to invest in distressed properties.

Blackstone Group LP, the world’s largest private-equity firm, may join Simon’s bid, two people with knowledge of the discussions said on Feb. 18. Blackstone is in preliminary talks with Simon, which would lead any resulting partnership.

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