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General Growth seeks to block lawsuit over Simon bid

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General Growth Properties Inc., a mall owner reorganizing in bankruptcy, asked a judge to block a shareholder lawsuit accusing its board of improperly rejecting a bid from Indianapolis-based Simon Property Group Inc.

General Growth’s bankruptcy gives it a legal shield against lawsuits such as the one brought in Cook County, Illinois, Feb. 19 by investor James Young, the company said in documents filed in Manhattan bankruptcy court yesterday. Young seeks a jury trial, alleging that seven members of General Growth’s board breached their duty to stockholders by rejecting Simon’s unsolicited $10 billion bid.

General Growth disputes the allegations and says Young and his attorneys are in contempt of the so-called automatic stay that shields bankrupt companies from lawsuits.

“The crux of the lawsuit is the completely false allegation that the defendant board members breached their fiduciary duties when they ‘rejected’ Simon’s overture ‘out of hand,’” lawyers for General Growth wrote.

General Growth, based in Chicago, also said that it hasn’t rejected any transaction. Instead, it said it seeks to keep control over its bankruptcy and allow other potential investors to take a stake in the company.

General Growth has said it has an offer to reorganize with a $2.63 billion infusion from Toronto-based Brookfield Asset Management Inc. That plan, which values shares at as much as $15 each under a transaction that involves issuing new stock and splitting the company in two, has the support of the largest shareholder, William Ackman’s Pershing Square Management LP.

Simon’s bid, which initially offered $9 a share in cash to shareholders, “would permit GGP a speedy exit from its bankruptcy process and would pay a substantial premium to the market price of GGP stock, which was trading as low as $0.36 in the year leading up the offer,” lawyers for Young wrote in the complaint.

Young said the board’s directors are “sitting behind a veritable fortress of entrenchment devices,” including a so-called poison pill, that prevent shareholders from selling their stock to Simon or other potential buyers.

“In short, defendants are holding the company and its public shareholders hostage for the improper purpose of entrenching themselves in power,” violating the law which says they owe a duty of loyalty, good faith and fair dealing to stockholders, lawyers for Young wrote.

Simon has also filed an objection in bankruptcy court to the company’s rejection of its bid. Simon said it was ignored by General Growth management and received no response to its $10 billion offer Feb. 8, leading it to make the offer public Feb. 16. General Growth’s creditors committee has said it supports that proposed deal.

General Growth wants Young and his lawyers held in contempt by the court. In addition, General Growth wants Young and the lawyers to reimburse the company’s attorneys’ fees spent in stopping the suit.

Young is represented in the Illinois suit by Coughlin Stoia Geller Rudman & Robbins LLP and Johnson Bottini LLP.

His lawyers, Leigh Lasky and Randall Baron, didn’t immediately return calls for comment.

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