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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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  1. How can any company that has the cash and other assets be allowed to simply foreclose and not pay the debt? Simon, pay the debt and sell the property yourself. Don't just stiff the bank with the loan and require them to find a buyer.

  2. If you only knew....

  3. The proposal is structured in such a way that a private company (who has competitors in the marketplace) has struck a deal to get "financing" through utility ratepayers via IPL. Competitors to BlueIndy are at disadvantage now. The story isn't "how green can we be" but how creative "financing" through captive ratepayers benefits a company whose proposal should sink or float in the competitive marketplace without customer funding. If it was a great idea there would be financing available. IBJ needs to be doing a story on the utility ratemaking piece of this (which is pretty complicated) but instead it suggests that folks are whining about paying for being green.

  4. The facts contained in your post make your position so much more credible than those based on sheer emotion. Thanks for enlightening us.

  5. Please consider a couple of economic realities: First, retail is more consolidated now than it was when malls like this were built. There used to be many department stores. Now, in essence, there is one--Macy's. Right off, you've eliminated the need for multiple anchor stores in malls. And in-line retailers have consolidated or folded or have stopped building new stores because so much of their business is now online. The Limited, for example, Next, malls are closing all over the country, even some of the former gems are now derelict.Times change. And finally, as the income level of any particular area declines, so do the retail offerings. Sad, but true.

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