Simon’s proposal would give equity investors about $9 a share. William
Ackman’s Pershing Square Capital Management LP, General Growth’s largest
shareholder, said in December the stock is worth $24 to $43. That may spur
companies including Brookfield Asset Management Inc., which owns General Growth
debt, to place a higher bid, said Jim Sullivan, an analyst with real estate
research firm Green Street Advisors.“What this bid represents is the start of
the game,” said Sullivan, based in Newport Beach, California. “It pretty much
comes down to Brookfield vs. Simon, but I wouldn’t rule out other guys trying to
get in the game

somehow.”General Growth, the owner of New York’s South Street Seaport and
Boston’s Faneuil Hall, filed the biggest real-estate bankruptcy in U.S. history
in April after amassing $27 billion in debt during an acquisition spree. The
Chicago-based company said yesterday that Simon’s offer wasn’t sufficient based
on discussions with “other interested parties.”Simon Chief Executive Officer
David Simon, who said at the time of General Growth’s bankruptcy filing that he
had tried to buy some of the company’s properties, said yesterday his takeover
offer is the best option for creditors and shareholders. The bid would repay
unsecured creditors in full for about $7 billion.
‘Best Option’

“We are confident it is the best option for all General Growth
constituencies and far superior to any other third-party proposal or stand-alone
plan that could be completed,” Simon said in a statement yesterday.General
Growth shares surged 28 percent yesterday to $12.02, signaling investors expect
a higher offer.Brookfield, a Toronto-based real estate investor with more than
$90 billion of assets under management, may offer a higher price for General
Growth or form a partnership with the mall owner as it emerges from bankruptcy,
according to Sullivan and Alexander Goldfarb, an analyst with Sandler O’Neill
& Partners LP in New York.“We don’t expect GGP to suddenly dial back its
game and believe that management will do what maximizes the value for its
shareholders,” Goldfarb, who recommends investors buy General Growth shares,
wrote in a research note yesterday. “Clearly, others, like Brookfield Asset
Management (which has sought to acquire a mall platform), could step in to
assist GGP with providing an alternative.”
‘Significant Investment’

Denis Couture, senior vice president of corporate and international affairs
for Brookfield, wouldn’t say whether his company is planning a takeover offer
for General Growth.Brookfield made a “significant investment in General Growth
securities or instruments” in 2009, Couture said in a telephone interview
yesterday. “We are a meaningful creditor in General Growth but we will not
disclose what or how much we own.”Brookfield or another company would need to
have both a business that combines well with General Growth and access to enough
cash to compete with Simon, said David Pauker, executive managing director at
Goldin Associates LLC, who isn’t involved in the General Growth bankruptcy. The
$7 billion a bidder would need just to pay off General Growth’s debt is a large
amount to raise, he said.“This is an indication that in one of the weakest areas
of real estate -- retail -- there is an expectation that values may be firming,”
Pauker said.
General Growth Response

General Growth plans to provide information on the company, including
financial projections and data on its shopping malls, to those interested in
making bids, according to its statement yesterday. Materials likely will be sent
out by the beginning of next month, with indications of interest due back within
four weeks, the company said.“We believe the information we would provide to you
as part of this process will enable you to better understand the company, get to
a higher valuation, and provide a fully documented offer,” General Growth CEO
Adam Metz said in a letter to David Simon that was included in the
statement.Ackman’s Pershing Square, based in New York, owns a 25 percent
economic interest in General Growth, including 7.5 percent of its shares. In
December, Ackman issued a 54-page presentation that put a value on General
Growth’s shares two and a half to almost five times the amount Simon yesterday
offered.
$24 to $43

“Using comparable public company valuations, Pershing Square believes GGP
is worth between $24 and $43 per share,” Ackman’s hedge fund said in the
presentation.Ackman declined to discuss Simon’s offer, citing his position on
General Growth’s board that he has held since June.Based on the current
valuations for U.S. mall owners and Simon and Brookfield’s “strong strategic and
financial motivations,” General Growth is likely valued at $11 to $18 a share,
Green Street said in a note to investors last month. Simon would be able to pay
$15 a share for General Growth and still be able to convince investors it’s
paying a reasonable price, Green Street said.General Growth owns four of the
five U.S. malls with the highest sales per square foot, with the other owned by
Simon, according to estimates by Green Street.Simon’s offer gives Brookfield,
other possible bidders and General Growth itself the opportunity to “step up and
let the world know what they want to do,” said Sullivan.“This is a good first
bid,” he said. “It’s not a knock- out.”

--With assistance from Tiffany Kary and Prashant Gopal in New York.
Editors: Kara Wetzel, Rob Urban

Owner Article of : businessweek.com