Dow Jones Newswire-Wall Street Journal | Canadian property
investor Brookfield Asset Management Inc. has informed General Growth
Properties Inc. that it won’t modify its offer to provide $2.6 billion
of capital to the bankrupt mall owner in light of a competing proposal
from Simon Property Group Inc.
In a letter sent Monday to top General Growth executives, Brookfield
Chief Executive J. Bruce Flatt took issue with several aspects of
Simon’s proposal to take an ownership stake in General Growth, noting
that such an arrangement “will inevitably create uncertainty as to
whether GGP will remain an independent company.” He dismissed Simon’s
proposal as “a material ongoing impediment to the prosperity of the
company.”
Last month, Brookfield offered to supply $2.6 billion to help General Growth emerge from Chapter 11 bankruptcy protection in exchange for a 26 percent ownership stake and 60 million warrants to buy General Growth shares at $15 per share. In addition, investors Pershing Square Capital Management LP and Fairholme Asset Management pledged to provide another $3.9 billion in exchange for equity stakes of 11 percent and 28 percent, respectively, and another 60 million warrants that they would split. General Growth would use the capital, and other money it might raise, to pay its $7 billion of unsecured debt.
(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)
Simon, which has pursued General Growth for months, countered last week by offering the same $2.6 billion as Brookfield in exchange for a partial ownership stake–but without requiring the warrants. Simon would match the $6.5 billion total of the Brookfield-Pershing-Fairholme offer by getting $1 billion from hedge fund Paulson & Co., additional money from other, unnamed investors and pledging to cover any remaining gap on its own.
Brookfield and Fairholme pan the Simon offer as an attempt to eliminate a rival bid and gain time for making a run at acquiring General Growth in whole.
Simon on Tuesday issued a statement countering Brookfield’s latest criticisms. “Simon’s offer is firm, fully financed and economically superior because it would not include expensive and highly dilutive warrants,” the statement reads. “In addition, Simon strongly believes its passive, minority stake with numerous procedural and governance safeguards does not pose any concern for the stakeholders of General Growth.”
Simon went on to blast Brookfield’s letter as a “transparent and self-serving effort to prevent competition for the best GGP recapitalization.”
General Growth hadn’t provided comment by midafternoon Tuesday.
Brookfield’s Flatt said his company is unwilling to revise its proposal by reducing the amount of warrants it would receive. The cost of the 120 million warrants for Brookfield, Fairholme and Pershing–which any company that later acquired General Growth would have to buy back–is estimated in the hundreds of millions of dollars.
“We wish to strongly reiterate the position that we stated in our proposal letter of Feb. 20 and have consistently maintained regarding our need for protection and compensation,” Flatt wrote. “We will not participate further in any process involving a transaction with GGP unless the approval order is entered and the warrants are issued on the terms and in the timeframe contemplated” in earlier agreements with General Growth.
Fairholme and Pershing also have said they will not revise their offers. Bloomberg News earlier reported some contents of the Brookfield letter.
General Growth is to select the offer it favors for “stalking horse” status, making that bid the one that others must beat, in time for an April 29 hearing in front of U.S. Bankruptcy Judge Allan Gropper. It remains in discussions with both the Simon and Brookfield camps, people familiar with the matter say.
General Growth, based in Chicago, is the second largest U.S. mall owner with 204 malls. Simon, based in Indianapolis, is the largest with 321 retail properties. General Growth sought bankruptcy protection a year ago after failing to refinance portions of its $27 billion debt load as they came due.
However, General Growth’s outlook has improved markedly in the past year as its management and advisers restructured nearly all of the company’s $20 billion of mortgages, extending their due dates by several years. The improving capital markets and attention from Simon and Brookfield have buoyed the company, pushing its stock from below $1 last year to more than $15 this spring.
In his letter, Flatt, the Brookfield CEO, outlined other flaws in the Simon proposal and advantages of his offer. He posits that Simon owning a portion of General Growth would raise antitrust concerns with federal regulators. Regarding Simon’s pledge to stay out of General Growth’s management affairs if its offer is accepted, he wrote: “We do not believe that any formulaic ‘limitations’ proposed by Simon will materially alter the burden that GGP will face in hiring and retaining employees and management, negotiating leases 1 8 with retailers 3 8 , pursuing acquisition or development opportunities or accessing the capital that it needs to finance and grow its business.”
Flatt also listed several commitments Brookfield has made to General Growth, including helping General Growth to manage several office buildings that it owns and its residential-development business. Brookfield also could help General Growth expand internationally, he wrote.
General Growth’s stock was trading at $15.04, down 6 cents, in midday trading on the New York Stock Exchange. Simon’s stock was at $84, up 1.3 percent.
