General Growth Properties Inc. (GGP:US) rose the most in a year after investor Bill Ackman urged the mall owner to consider a sale, saying the company’s largest rival and biggest shareholder have both expressed interest in a takeover.
Ackman’s Pershing Square Capital Management LP, General Growth’s No. 2 shareholder, has discussed a takeover of the Chicago-based company with Simon Property Group Inc. (SPG:US), according to a letter Ackman filed today with the U.S. Securities and Exchange Commission. Brookfield Asset Management Inc. (BAM:US), General Growth’s largest investor, didn’t support the deal and said it may pursue an acquisition on its own, Ackman said. Brookfield said today that it isn’t trying to buy General Growth.
“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 the letter. Brookfield should be stopped from “unfairly acquiring control” of General Growth without paying a “premium in a competitively negotiated transaction,” he wrote.
General Growth exited bankruptcy protection in November 2010 following a takeover battle between Indianapolis-based Simon Property, its larger competitor, and an investor group that included Brookfield and Pershing Square. 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.
General Growth climbed 9.7 percent to $20.32 at the close of New York trading. It was the stock’s biggest gain since Aug. 9, 2011, and its highest price in almost four years.
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. Were that ratio used with Simon’s closing stock price yesterday, General Growth would be valued at about $28 a share.
General Growth’s board and management team “will carefully review Pershing Square’s letter,” the company said in a statement today.
Les Morris, a Simon Property spokesman, declined to comment on Ackman’s letter. Ackman didn’t respond to a request for comment.
“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 today in an e-mailed statement. “Brookfield has no interest in selling its stake in GGP. We are 100 percent supportive of the current management team of GGP.”
In the past year, Brookfield 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 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 has gone from owning 29 percent of the mall owner to 42.2 percent through shares and warrants, Ackman said.
“To be clear, we are not accusing Brookfield or the company of wrongdoing in connection with the company’s potential sale,” Ackman wrote. “However, once Brookfield indicated that it was interested in acquiring the company, its interests diverged with those of other GGP shareholders.”
Simon is the most 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 in a telephone interview today.
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.
General Growth’s shares have gained 56 percent in the past 12 months. Pershing Square has a 10.2 percent stake in the company, including stock and warrants, Ackman said in today’s letter.
Pershing met with David Simon, chief executive officer 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 Chief Executive Officer 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. 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 in today’s letter.
“We also explained that Pershing Square was not interested in selling GGP stock other than at a substantial premium,” he wrote.
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