General Growth Properties Inc. is seeking a higher price, fewer stock warrants or both from Brookfield Asset Management Inc.
after its bankruptcy exit plan was matched by Simon Property Group Inc., a person with knowledge of the discussions said.
General Growth, the second-biggest U.S. mall owner, also is continuing to talk with larger rival Simon, said the person, who asked not to be named because the discussions are private. General Growth needs to decide if it will continue to back Brookfield’s plan before a bankruptcy court hearing on the competing proposals, scheduled for April 29.
Indianapolis-based Simon, whose $10 billion takeover offer for General Growth was turned down as too low in February, earlier this week pledged to invest $2.5 billion in a reorganization of the company and match the terms of a plan by Brookfield and partners Fairholme Capital Management LLC and Pershing Square Capital Management LP. Simon said its proposal is better for General Growth shareholders than the Brookfield plan because it doesn’t include issuing warrants that may dilute stock value.
Brookfield “is averse to participating in bidding wars and may not currently feel that it has to,” Cedrik Lachance, a senior analyst at Green Street Advisors in Newport Beach, Calif., wrote in a note to investors Thursday night. “However, the mathematics of recapitalizing GGP at higher prices suggests that there is room for a higher bid.”
Hedge fund Paulson & Co. pledged to invest $1 billion as part of the proposal by Simon. General Growth said this week that it will study the new offer.
Katherine Vyse, a spokeswoman for Brookfield, declined to comment. Les Morris, a Simon spokesman, didn’t immediately return a phone message seeking comment.
To win backing from General Growth, Simon needs to explain its planned strategy for the company, the person familiar with the talks said. Given that Simon would own a large stake in its biggest rival, akin to Coca-Cola Co. investing in PepsiCo Inc., the company needs to lay out details of its multi-year business plan for General Growth, the person said.
Simon, the largest U.S. mall owner, said this week it’s still willing to buy Chicago-based General Growth outright. The $6.55 billion plan by the Brookfield-led group seeks so-called stalking horse status at the April 29 hearing and would include issuing stock warrants if the proposal is approved by the court, increasing the price of any future takeover by another bidder.
General Growth would emerge from bankruptcy as an independent company under both the Brookfield plan and Simon’s new offer. The mall owner filed the largest real estate bankruptcy in U.S. history one year ago after amassing $27 billion in debt making acquisitions. Its properties include New York’s South Street Seaport, Boston’s Faneuil Hall and the Grand Canal Shoppes and Fashion Show in Las Vegas.
Simon would buy 250 million shares at $10 each under its new offer, which it said is the same amount Toronto-based Brookfield would acquire under its plan and at the same price. It would also agree to the same terms as Brookfield’s proposal for the recapitalization of the company and planned spinoff of a new entity, David Simon wrote in an April 14 letter to General Growth CEO Adam Metz.