Investor urges General Growth to pursue being acquired by Simon

August 27, 2012

Bill Ackman’s Pershing Square Capital Management LP, the second-largest investor in General Growth Properties Inc., urged the mall owner to enter negotiations for a takeover by rival Simon Property Group Inc.

General Growth should “immediately form a special committee” and “initiate negotiations with Simon promptly,” Ackman said in a letter filed Monday with the U.S. Securities and Exchange Commission. Ackman first said on Aug. 23 that Simon was interested in buying Chicago-based General Growth.

“We believe the Simon transaction is in the best interest of GGP shareholders and will have a positive impact on substantially all other stakeholders,” Ackman said in Monday’s letter to General Growth’s board.

General Growth, the No. 2 U.S. shopping-mall owner, exited bankruptcy protection in November 2010 following a takeover battle between Indianapolis-based Simon, its larger competitor, and an investor group that included Pershing Square and Brookfield Asset Management Inc. General Growth filed for bankruptcy in 2009 after weighing itself down with $27 billion in debt that it was unable to refinance because of the financial crisis and collapse of the commercial mortgage-backed securities market.

A takeover by Simon may be difficult because Brookfield, General Growth’s largest investor, has said it doesn’t want to sell its shares, said John Sheehan, an analyst at Edward Jones in St. Louis. Brookfield has a 42-percent stake in General Growth, and the company’s chairman is J. Bruce Flatt, CEO of Brookfield.

“It would be difficult for Simon to complete a transaction unless Brookfield changes their public stance,” said Sheehan, who has a hold rating on Simon’s shares. “Even if you got every other shareholder to agree to it, mathematically it would be hard for them to make it work.”

David Keating, a General Growth spokesman, and Andrew Willis, a spokesman for Toronto-based Brookfield, declined to comment on Ackman’s letter Monday. A message left for Les Morris, a Simon spokesman, wasn’t immediately returned.

“Simon buying GGP has substantial strategic merit,” said Jim Sullivan, a managing partner at Green Street Advisors Inc., a Newport Beach, Calif.-based real estate research firm. “The impediment is you have a substantial shareholder that may not be a very willing shareholder, when it comes to selling, so I would expect Simon not to invest a lot of time in this if it involved pursuing a prize that’s not readily attainable.”

General Growth shares rose 1.3 percent Monday, to $20.02 each, at the close of trading.

Simon has discussed paying 0.1765 of a Simon share for each General Growth share, according to Ackman. That would would value General Growth at $27.73 a share, based on Simon’s Aug. 24 closing price.

That gives General Growth a higher per-share value than Simon’s proposed takeover from more than two years ago. Simon said in May 2010 that it offered $20 a share for its competitor, which was under bankruptcy protection at the time.

Ackman said last week that Brookfield had also expressed interested in taking over General Growth. Following Ackman’s disclosure, Brookfield said in a statement that it “is not taking any steps” to buy General Growth and that Pershing Square was trying to “create liquidity for its interest” in the company.

“At no time has Pershing Square sought liquidity for its GGP stake in conversations with Brookfield, Simon or otherwise,” Ackman wrote in Monday’s letter. Pershing Square would be able to sell its General Growth stake within 90 days “with minimal if any market impact” if it wanted to, he said.


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