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Simon again considering acquisition of shopping mall rival

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One of General Growth Properties Inc.'s largest shareholders says Simon Property Group Inc. is interested in acquiring the Chicago-based shopping mall competitor.

Bill Ackman, founder of Pershing Square Capital Management LP, the No. 2 shareholder in General Growth, said he’s discussed an acquisition of General Growth with Simon Property Group Inc.

Meanwhile, General Growth’s largest shareholder said it won’t pursue a takeover of the company and has no interest in unloading its stake after Ackman urged the mall owner to consider a sale.

Brookfield Asset Management Inc., which owns about 40 percent of General Growth, “is not taking any steps to acquire GGP,” the Toronto-based investor said in a prepared statement late Thursday.

Ackman’s discussions with Indianapolis-based Simon, the only U.S. mall owner larger than General Growth, represent a turnaround from two years ago, when Pershing Square said a combination of the two retail landlords raised antitrust concerns. General Growth left bankruptcy protection in November 2010 following a takeover battle between Simon and an investor group that included Brookfield and Pershing Square.

“We place a small possibility on a sale scenario, especially in light of Brookfield’s response that it is not exploring an acquisition of the whole company, nor is it interested in selling its stake,” UBS AG analysts including Ross Nussbaum wrote Friday. “We see a much greater likelihood that GGP remains as a standalone entity.”

The analysts lowered their rating on General Growth to neutral from buy after a jump in the shares Thursday left the stock near their target price of $21.

General Growth fell 4 percent, to $19.50 per share, after climbing 9.7 percent Thursday to $20.32, a four-year high, after Ackman filed the letter with the U.S. Securities and Exchange Commission detailing his discussions with Simon and Brookfield.

Pershing Square and Simon Property discussed a deal in which Simon would acquire its competitor for 0.1765 of a Simon share for each General Growth share, according to Ackman’s letter. Were that ratio used with Simon’s Aug. 22 closing stock price, General Growth would be valued at about $28 a share.

Simon has been “effectively handcuffed and gagged” from pursuing a deal because of Brookfield’s influence over General Growth, Ackman wrote in his letter to General Growth’s board. Brookfield increased its stake in the company after owning about 29 percent, including warrants, in its initial investment.

“Our goals are to ensure that a level playing field exists so that Simon, Brookfield and potentially other parties can compete to acquire the company,” Ackman said in his letter.

Les Morris, a Simon Property spokesman, declined to comment on Ackman’s letter. Ackman didn’t respond Thursday to a request for comment.

General Growth’s board and management team “will carefully review Pershing Square’s letter,” the company said in a prepared statement.

“Brookfield is not taking any steps to acquire GGP nor is it having any discussions with third parties in that regard,” the Toronto-based real estate investment company said. “Brookfield has no interest in selling its stake in GGP. We are 100 percent supportive of the current management team of GGP.”

Brookfield said in its statement that it considered “a variety of possible transactions which would facilitate Pershing Square’s desire to maximize the value of and create liquidity for its interest in GGP,” Brookfield said. Those discussions “are not continuing,” according to the statement.

Simon is unlikely to try to buy General Growth without Brookfield’s cooperation, the UBS analysts wrote Friday. Simon never officially made an offer to acquire its rival or Pershing’s stake, they said, citing conversations with the company.

Simon would be a logical buyer for General Growth partly because of cost savings it could achieve by purchasing its competitor, Craig Guttenplan, an analyst at CreditSights Inc. in London, said. General Growth owns or has interest in 169 regional shopping malls in 43 states.

Pershing met with David Simon, CEO of Simon Property, last October to talk about the potential stock deal, according to Ackman’s letter. Based on the share ratio discussed, Simon would have paid a 65-percent premium over General Growth’s closing share price the previous day.

In November, Pershing met with Brookfield officials, including CEO Bruce Flatt, to discuss the proposed Simon deal, according to Ackman’s letter. They indicated that Brookfield didn’t support the transaction, and instead was interested in buying General Growth itself, possibly in partnership with Simon, Ackman wrote.

Brookfield in April proposed buying General Growth and paying for the purchase with proceeds from the sale of 68 of the company’s malls to Simon, according to the letter. Simon rejected the proposal because it didn’t like the selection of malls and believed “the price was too high,” Brookfield told Pershing Square.

Brookfield then decided to try to acquire General Growth without Simon, according to the Ackman’s letter. As part of the proposed deal, Brookfield would consider selling 14 of General Growth’s best malls to Simon or other buyers to raise money.

In July, Brookfield officials including Flatt met with Pershing Square and said they needed more time to prepare a purchase, including a series of securities sales and a purchase of Pershing Square’s General Growth shares. Pershing Square “expressed concern” about the proposed transactions, Ackman said.

“We also explained that Pershing Square was not interested in selling GGP stock other than at a substantial premium,” he wrote.

Ackman is “an activist investor,” Guttenplan said. “He’s looking for ways to maximize value.”

The hedge-fund manager may be using the letter “as a wedge to get out of General Growth,” having made a large enough profit in the investment and wanting to place the money elsewhere, said Rich Moore, an analyst with RBC Capital Markets in Solon, Ohio.

Simon stock was down 23 cents Friday morning, to $156.23 per share.

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  1. I took Bruce's comments to highlight a glaring issue when it comes to a state's image, and therefore its overall branding. An example is Michigan vs. Indiana. Michigan has done an excellent job of following through on its branding strategy around "Pure Michigan", even down to the detail of the rest stops. Since a state's branding is often targeted to visitors, it makes sense that rest stops, being that point of first impression, should be significant. It is clear that Indiana doesn't care as much about the impression it gives visitors even though our branding as the Crossroads of America does place importance on travel. Bruce's point is quite logical and accurate.

  2. I appreciated the article. I guess I have become so accustomed to making my "pit stops" at places where I can ALSO get gasoline and something hot to eat, that I hardly even notice public rest stops anymore. That said, I do concur with the rationale that our rest stops (if we are to have them at all) can and should be both fiscally-responsible AND designed to make a positive impression about our state.

  3. I don't know about the rest of you but I only stop at these places for one reason, and it's not to picnic. I move trucks for dealers and have been to rest areas in most all 48 lower states. Some of ours need upgrading no doubt. Many states rest areas are much worse than ours. In the rest area on I-70 just past Richmond truckers have to hike about a quarter of a mile. When I stop I;m generally in a bit of a hurry. Convenience,not beauty, is a primary concern.

  4. Community Hospital is the only system to not have layoffs? That is not true. Because I was one of the people who was laid off from East. And all of the LPN's have been laid off. Just because their layoffs were not announced or done all together does not mean people did not lose their jobs. They cherry-picked people from departments one by one. But you add them all up and it's several hundred. And East has had a dramatic drop I in patient beds from 800 to around 125. I know because I worked there for 30 years.

  5. I have obtained my 6 gallon badge for my donation of A Positive blood. I'm sorry to hear that my donation was nothing but a profit center for the Indiana Blood Center.

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