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Simon adds $1.1B to General Growth proposal

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Simon Property Group Inc. added four backers to its proposal to help rival mall owner General Growth Properties Inc. emerge from bankruptcy, increasing the plan’s total investment by $1.1 billion.

ING Clarion Real Estate Securities, Taconic Capital Advisors, Oak Hill Advisors LP and a unit of Deutsche Bank AG will join the plan, Indianapolis-based Simon said Wednesday. The investments would be on top of the $2.5 billion pledged by Simon and $1 billion from New York hedge fund Paulson & Co.

Simon, spurned in a February bid to buy General Growth outright, said a week ago it would match the terms of a bankruptcy exit proposal led by Brookfield Asset Management Inc. Chief Executive Officer David Simon is scheduled to meet with General Growth officials in Chicago on Thursday, two people familiar with plan said.

Simon will revise its bid to include the right to name two directors for General Growth’s board, rather than the three it had first proposed, one of the sources said. The change is the result of discussions between the two biggest U.S. mall owners over the past week, said the source, who asked not to be named because the proposal isn’t public.

The company’s selections are Dale Anne Reiss, a former senior partner at Ernst & Young LLP, and Peter D. Linneman, a professor of real estate finance and public policy at the Wharton School at the University of Pennsylvania, the person said. Both people are unaffiliated with Simon, the person said.

Simon said its offer is better for General Growth shareholders because, unlike Brookfield’s plan, it doesn’t include warrants that may dilute stock value. General Growth, based in Chicago, backed the Brookfield plan in February after turning down a $10 billion takeover offer by Simon.

The addition of partners to the Simon offer “underscores the fact that dilutive warrants required by Brookfield, which could cost GGP shareholders $895 million, are unnecessary and unfair to GGP’s current shareholders,” David Simon said in Wednesday’s statement.

Simon said he’s in discussions with “additional parties interested in co-investing in GGP without requiring these costly warrants.”

General Growth puts the warrants’ value at about $519 million. David Keating, a spokesman for General Growth, declined to comment late Wednesday.

Brookfield CEO J. Bruce Flatt said in an April 19 letter to General Growth that Simon’s plan raises antitrust concerns that would hurt the mall owner after it reorganizes. Brookfield and its partners, Fairholme Capital Management LLC and Pershing Square Capital Management LP, have proposed a $6.55 billion investment in General Growth to bring it out of Chapter 11 bankruptcy. A hearing on the plans is scheduled for April 29.

“How can it make any sense for General Growth’s largest competitor to own a negative control block in GGP, ensuring that GGP will not be able to function effectively, and eventually be sold to Simon and no one else?” Cyrus Madon, Brookfield’s senior managing partner responsible for restructuring and lending, said in an e-mailed statement Wednesday. “Would Pepsi allow Coke to become its largest shareholder?”

Brookfield won’t proceed without receiving warrants, Flatt said in his April 19 letter.

General Growth filed the largest real estate bankruptcy in U.S. history a 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.

Although Simon’s takeover bid was turned down as too low in February, the company said last week it’s still interested in buying its rival outright.

Brookfield plans to name Flatt, Madon and Ric Clark, CEO of its U.S. affiliate, to General Growth’s board should its proposed investment be approved, according to a person with knowledge of the plans. Brookfield has the right to name three directors if a bankruptcy court judge approves the company’s plan for General Growth.

“We haven’t made any determinations at this stage, but we expect these three representatives would be board representatives,” said Katherine Vyse, a Brookfield spokeswoman.
 

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