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Brookfield after 30-percent stake in General Growth, source says

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Brookfield Asset Management Inc. is in talks with General Growth Properties Inc. to take a 30-percent stake in the shopping mall owner as it comes out of bankruptcy, said a person familiar with the negotiations.

The plan by Toronto-based Brookfield would give General Growth a higher valuation than a $10 billion takeover bid by Simon Property Group Inc., said the person, who declined to be identified because the talks aren’t public.

Indianapolis-based Simon, the largest U.S. shopping mall owner, has offered to purchase General Growth in a deal that would give equity investors about $9 a share and repay unsecured creditors in full. Chicago-based General Growth said the bid, made public on Feb. 16, was too low and invited 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 up to $2 billion or more from public markets to fund its exit from bankruptcy, according to one of those people, who asked not to be named because the talks are private.

Denis Couture, a spokesman for Brookfield, declined to comment. David Keating, a spokesman for General Growth, didn’t immediately respond to a request for comment.

General Growth’s shares have rallied past Simon’s buyout offer, signaling investors expect a higher bid. The stock rose 39 cents, or 3.1 percent, to $13.15 each Tuesday afternoon in over-the-counter trading.

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.

Brookfield’s plan to bid for a stake in General Growth was reported yesterday by the Wall Street Journal.

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 that “acquiring assets through distress situations offers one of the few ways to acquire assets at meaningful discounts to their intrinsic value.” Brookfield last year assembled a $5 billion equity group to invest in distressed properties.

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.

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, said the people, who declined to be identified because the negotiations are private. Indianapolis-based Simon would lead any resulting partnership, one of the people said.
 

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