bloomberg reports on ggp decision:
General Growth Wins Court Approval of Brookfield-Led Bid
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By Tiffany Kary and Daniel Taub
May 8 (Bloomberg) -- General Growth Properties Inc., the second biggest U.S. mall owner, won bankruptcy court approval for an auction process that makes a group led by Brookfield Asset Management Inc. property the first bidder. General Growth fell 11 percent in New York trading.
U.S. Bankruptcy Judge Allan Gropper in Manhattan approved General Growth’s plan over one proposed by the country’s biggest mall owner, Simon Property Group Inc. It gives Brookfield, Fairholme Capital Management LLC and Pershing Square Capital Management LP warrants to buy stock in the reorganized company in exchange for financing. Testimony at yesterday’s hearing focused on whether the warrants might chill bidding.
“As I understand the process, it is intended to open rather than close, the bidding,” Gropper said during the hearing, adding that General Growth’s equity holders, creditors and board all backed the Brookfield bid.
General Growth, based in Chicago, said the bid is intended to serve as a so-called stalking horse for higher offers or help raise money from capital markets. Simon said the warrants would dilute General Growth’s value, prompting the Indianapolis-based company to withdraw from bidding. Simon made its last offer for General Growth last night.
‘Hastily Decided’
“We are disappointed that the GGP board hastily decided in less than 24 hours to accept substantially less value,” Simon Chief Executive Officer David Simon said in a statement. “GGP’s decision to proceed with a transaction that transfers hundreds of millions of dollars in value to the Brookfield consortium has caused us to conclude that we cannot reach a mutually beneficial transaction with GGP.”
General Growth dropped $1.77 to $14.07 yesterday in New York Stock Exchange composite trading. Simon rose 80 cents, or 0.9 percent, to $85.68.
“We think that the business is worth materially more than Simon thought it was,” said Glenn Tongue, managing partner of T2 Partners LLC, which owns more than 2 million General Growth shares. “We’re thrilled to have a mechanism through which we can own this company on a long-term basis, until it gravitates up to its intrinsic value.”
Lorraine McGowan, a partner in the New York office of Orrick, Herrington & Sutcliffe LLP, said before yesterday’s hearing that the “business judgment rule,” which says the bankruptcy court shouldn’t supplant the corporate governance of a company, would work in General Growth’s favor.
‘Carefully Vetted’
“The issues have been carefully vetted and negotiated by the board,” Gropper said. “This court cannot and will not substitute its judgment for that of the board.”
The Brookfield-backed proposal approved yesterday is worth $7 billion in equity. The group also agreed to loan the company as much as $1.5 billion if it can’t raise the funding elsewhere. General Growth lawyer Marcia Goldstein said the financing will allow the company to choose a final best offer and file its Chapter 11 reorganization plan by mid-July.
Brookfield’s plan “gives all shareholders the chance to participate in the tremendous upside of this company for a very, very long time, as opposed to being cashed out at the bottom of the market,” Cyrus Madon, senior managing partner at Brookfield, said in an interview yesterday. “We’re going to be working very hard to get through the rest of the bankruptcy process with the company, and then get to the task of creating value.”
Offer Raised
On May 6, Simon raised its competing offer to about $6.5 billion, which would value General Growth at $20 a share. Its original bid on Feb. 16 would have given General Growth stockholders $9 a share, including $6 in cash. Both that plan and the new one would have paid in full all of General Growth’s unsecured creditors, who hold about $7 billion in debt.
Ronen Bojmel, a managing director at General Growth’s financial adviser Miller Buckfire & Co., testified that the permanent warrants are worth about $688 million. They could vary in value from $200 million to $1.2 billion, depending on how the company is valued when it exits bankruptcy, he said.
“The numbers are extraordinary, but this is an extraordinary case,” Gropper said.
Under the revised Brookfield bid, Pershing Square will waive its share of interim warrants, and Toronto-based Brookfield will increase the strike price on its warrants to $10.75 from $10.50, Goldstein told Gropper yesterday.
Bruce Berkowitz, founder of Miami-based Fairholme, one of Brookfield’s two partners and General Growth’s largest creditor, said the warrants help balance the risk associated with a $15- per-share investment in General Growth. The company closed 93 cents below that price yesterday, meaning that Fairholme, without the warrants, currently is losing about $173 million on the investment, he said in an interview yesterday.
‘Far From Riskless’
“I promise you, these warrants are not free,” Berkowitz said. He added that he believes General Growth’s shares will rise, and expects his investment to be profitable. “I would not have offered the deal or done the deal if I didn’t think so. But it’s far from riskless.”
Pershing Square’s CEO William Ackman offered to forgo 17 million interim warrants in an effort to push through Brookfield’s plan, saying Simon’s bid posed antitrust risks because it would unite the nation’s two largest mall owners.
“General Growth is pleased, as this secures a $6.55 billion equity investment and a $2 billion backstop and has material improvements,” Goldstein told Gropper. She said General Growth’s board met twice since receiving Simon’s revised offer, and still found the Brookfield plan superior.
General Growth filed the largest real estate bankruptcy in U.S. history in April 2009 after amassing $27 billion in debt making acquisitions. Its properties include New York’s South Street Seaport, Boston’s Faneuil Hall and the Grand Canal Shoppes and Fashion Show in Las Vegas.
The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Daniel Taub in Los Angeles at dtaub@bloomberg.net.
Last Updated: May 8, 2010 00:01 EDT
