Mergers & Acquisitions and Commercial Real Estate and Public Companies and Simon Property Group and Deals and Real Estate & Retail

General Growth plans to split in two to exit bankruptcy

February 24, 2010

General Growth Properties Inc., the second-biggest U.S. shopping mall owner, plans to split itself into two companies and receive $2.63 billion in capital from Brookfield Asset Management Inc. as it works to exit bankruptcy.

The proposal would give General Growth equity holders total consideration of $15 a share, the Chicago-based company said in a statement Wednesday. Stockholders would receive one new General Growth share with an initial value of $10, plus one share of a new company, to be called General Growth Opportunities, with an initial value of $5, for each share they now own. Unsecured creditors would be repaid in full, plus interest.

The plan comes after an unsolicited $10 billion takeover bid by Indianapolis Simon Property Group Inc., the largest U.S. shopping mall owner. Under that offer, made public last week, equity investors would have received about $9 a share and unsecured creditors paid in full for about $7 billion. General Growth said the offer was too low and it would invite others to submit bids.

“The General Growth-Brookfield proposal will likely hold greater appeal for its shareholders,” said Ben Yang, an analyst with Keefe, Bruyette & Woods in San Francisco. “The proposal to team up with Brookfield still requires many pieces to fall into place, including selling new shares above and beyond Brookfield’s investment.”

Toronto-based Brookfield would have a 30-percent stake in the company under the arrangement.

General Growth would split into a company owning shopping malls and another that would own buildings and land with redevelopment possibilities. General Growth Opportunities would have holdings including New York’s South Street Seaport, 60 acres of land on Waikiki Beach in Hawaii, and General Growth’s Chicago headquarters building, according to a person with knowledge of the plan. It would have $1.6 billion of equity and assume $1.2 billion of existing debt.

The Brookfield-backed plan has advantages because it would help General Growth make the value of its assets easier to understand, said a person involved in the bankruptcy case.

Les Morris, a spokesman for Indianapolis-based Simon, said he had no immediate comment.

General Growth’s shares have rallied past Simon’s buyout offer, signaling investors expected a higher bid. The stock rose 54 cents, or 4.2 percent, to $13.51 per share in afternoon over-the-counter trading.

General Growth filed the largest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt making acquisitions. Brookfield owns almost $1 billion in General Growth debt, two people with knowledge of the company’s holdings said last week.

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