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Mall owner The owner of Ala Moana Center has dropped its bid to buy Liberty House, amid controversy over the $195 million purchase price, the latest skirmish in the retail chain's 21/2-year-old bankruptcy.
drops offer for
Liberty House
A General Growth Properties
attorney says the company is still
interested in buying the retailerBy Tim Ruel
Star-Bulletin
"This has been a long, complex process," Liberty House President John Monahan said today.
Thomas Wolford, an attorney for Chicago-based General Growth Properties Inc., withdrew the company's bid during a hearing at U.S. Bankruptcy Court yesterday.
After the hearing, Wolford said the company still had an interest in buying 150-year-old Liberty House, but could not say if the company would submit another plan.
The proposal elicited heavy criticism yesterday from attorneys representing Hawaii's largest retailer and its creditors. And Bankruptcy Judge Lloyd King said he would reject the plan if General Growth did not withdraw the proposal.
"Right now, they (General Growth) haven't struck a cord that anyone is responding to," said Bruce Bennett, attorney for Liberty House Inc. He later noted that the retailer and its creditors would be obligated to hear any legitimate future proposals from General Growth or other bidders.
Bennett said General Growth's plan was misleading and would not be worth $195 million because of several million-dollar deductions mentioned further down in the proposal. For example, if Liberty House did not have $37 million in cash at the time of the purchase, the purchase price would drop with the difference.
Moreover, General Growth had not submitted a disclosure statement, which provides details of the offer, making the plan more unclear, Bennett said.
"We have a problem." Bennett said. "They were able to style their plan as something it wasn't."
Stephen Karotkin, attorney for the retailer's institutional lenders, called the plan a mere tool for negotiation, not a serious bid.
"I would disagree with that," Wolford said after the hearing.
Wolford also defended the proposal during the hearing, saying the deductions were typical of agreements and that General Growth had followed the rules of disclosure.
General Growth could not disclose the details when it filed the plan because the company needed more specific information, including details of Liberty House's leases, and information about its taxes from previous years, which the Internal Revenue Service is disputing.
General Growth's plan simply made good economic sense, Wolford said.
Liberty House filed for Chapter 11 reorganization bankruptcy in March 1998, listing $284.2 million in assets and $248.4 million in liabilities. The case has sunk into a court battle between two boards of directors, one representing the retailer's major creditors, and the other representing owner JMB Realty Corp. of Chicago. Both sides have filed plans for reorganization, and a key dispute is the value of Liberty House, which the lenders peg around $190 million, while JMB says it is closer to $285 million.
Although General Growth's plan drew criticism from lawyers for the creditors and for the retailer's management, an attorney for JMB was more open to the bid.
Daniel Murray, attorney for JMB, said the creditors should not have opposed the bid so quickly, since the lenders had not discussed the proposal with JMB's board of directors.
"I think it's premature when you've only had 24 to 48 hours to explore it," he said.
But Judge King said he was concerned that the two current plans for reorganization were enough to deal with.
One local retail analyst said she was initially surprised by General Growth's plan, since retail companies don't usually buy an anchor tenant of a mall that they already own.
"It really struck me as off the wall when I first read it," said Jan Berman, president of retail consulting firm JBJ Enterprises and former president of Retail Merchants of Hawaii.
Monahan said he had received several concerned phone calls from owners of other shopping centers, many of which also carry Liberty House as a major tenant.
But Berman said yesterday's rejection would not faze General Growth, in part because of its sheer size. A real estate investment trust, General Growth has a portfolio of 136 regional shopping malls in 37 states, and is one of the nation's biggest developers, Berman said.
General Growth bought Ala Moana Center for $810 million last year from Japan's Daiei Inc.
General Growth's plan, filed with the court on Tuesday, would have offered $100 million in cash and a 5-year $95 million note to buy all assets of Liberty House. The plan would have allowed General Growth to offer the leases of certain store locations to competing retailers.
Liberty House's contentious bankruptcy is further complicated by IRS claims that the retailer owes $35 million in taxes for 1995 to 1996. The taxes had been owed by Northbrook Corp., Liberty House's former parent, of which JMB is a major shareholder.
Regardless, a $35 million claim would not hurt Liberty House, Bennett said.
JMB attorney Murray said Northbrook filed the taxes properly and only owes the IRS $4 million for back taxes for 1992 to 1994.
Judge King yesterday said he had considered rejecting both JMB's and the lender's plans because of the IRS audit.
King said both sides must finish adjusting the details of their bids by Sept. 14. Afterward, the complete plans go to each of Liberty House's creditors, who will vote on them, with the results possibly going to King by January.