General Growth Properties Inc.’s proposal to exit bankruptcy with funding from Brookfield Asset Management Inc. has
a clause that will give the company until the end of the year to complete a takeover deal with another party, according to
two people with knowledge of the plan.
The proposal, filed with the bankruptcy court Wednesday, will compel Brookfield to stay as a backup investor until General Growth accepts and completes any superior offer it may receive, said the people, who asked not to be identified because the plan isn’t yet public. The Brookfield plan, which also includes Fairholme Capital Management LLC and Pershing Square Capital Management LP, would keep the mall owner independent.
The provision would give General Growth time to explore a takeover bid from Simon Property Group Inc., whose $10 billion offer was turned down by its rival in February. Simon, the largest U.S. mall owner, is preparing a new bid, according to a person with knowledge of that plan. Brookfield’s proposal is subject to approval by U.S. Bankruptcy Judge Allan Gropper, who gave General Growth an Aug. 26 deadline to control its case.
The provision likely “was specifically designed to take care of the antitrust concerns” from a Simon takeover, said Jim Sullivan, an analyst with Green Street Advisors in Newport Beach, Calif. A probe by regulators into a combination could “defer a closing or prevent a closing,” he said. “General Growth and its board want certainty.”
The proposal by Brookfield, Fairholme and Pershing Square calls for a combined $6.55 billion investment to bring Chicago-based General Growth out of bankruptcy. The mall owner said last month that it would seek court approval for the group to be a “stalking horse,” or the first bidder that puts an initial value on the company. That status wouldn’t have required Brookfield to remain a back-up investor should General Growth accept another offer that fails to go through.
Denis Couture, a Brookfield spokesman, declined to comment. David Keating, a spokesman for General Growth, said he had no immediate comment. Les Morris, a spokesman for Simon Property, declined to comment.
Brookfield’s offer would limit the Toronto-based company to selecting three General Growth board members, one of the people familiar with the proposal said. Pershing Square would select one, and the remaining five would be independent of the investors. A majority of the other shareholders would have to approve any future Brookfield offer to buy General Growth, the person said.
“Governance concerns here are significant, and I think they’ve taken a significant step toward alleviating some of those concerns,” said Sullivan of Green Street Advisors.
Simon may submit a new takeover bid to try to stop Brookfield and its partners from being given stalking-horse status and granted warrants to purchase 120 million General Growth shares at $15 each, Sullivan said.
Bruce Berkowitz’s Miami-based Fairholme and William Ackman’s Pershing Square of New York earlier this month offered to jointly invest $3.93 billion in General Growth in addition to $2.63 billion pledged earlier by Brookfield.
Pershing Square is General Growth’s biggest equity investor, with a 25-percent economic interest, including 7.5 percent of its shares. Fairholme is the largest creditor, with about $1.83 billion of General Growth’s unsecured debt, Berkowitz and Ackman said in a letter filed March 9 with the U.S. Securities & Exchange Commission. Pershing Square also owns about $434 million of unsecured debt, according to the letter.
The Brookfield group’s plan would give equity holders about $15 a share and pay unsecured creditors fully in cash. Simon’s bid called for stock investors to receive about $9 a share and also paid unsecured creditors in full.
General Growth shares have climbed past Brookfield’s offer, indicating investors expect a higher bid. They fell 13 cents, to $16.09 each, Wednesday afternoon.
Current General Growth investors would own at least 34 percent of the company that emerges from bankruptcy and 87 percent
of a new entity, General Growth Opportunities, under the plan by Brookfield and its partners, said the person familiar with
the proposal. Stockholders would get one new General Growth share with an initial value of $10, plus one share of the new
company, with an initial value of $5, for each share they own.
General Growth would be able to cut the $3.93 billion investment by Fairholme and Pershing Square by $1.9 billion should it be able to sell shares at better terms, the person said. Of any money General Growth is able to raise at better terms, 80 percent of the additional capital could be used for liabilities assumed by General Growth Opportunities, including about $300 million in tax liabilities associated with master- planned communities.
General Growth filed the largest real estate bankruptcy in U.S. history last April after amassing $27 billion in debt making acquisitions. Its malls include the Grand Canal Shoppes and Fashion Show in Las Vegas, Boston’s Faneuil Hall and South Street Seaport in New York City.
Simon CEO David Simon has dismissed concerns that U.S. regulators might block a purchase of General Growth, the owner or manager of more than 200 malls in 43 U.S. states. Indianapolis-based Simon Property isn’t at risk of having too large a share or a monopoly in any market, he said in a Feb. 5 conference call with analysts and investors.
“We certainly would argue strenuously that neither of those occur with or without GGP or anybody else,” he said. “There’s a lot of retail real estate out there.”