General Growth looking to split


POSTED: Thursday, February 25, 2010

General Growth Properties Inc., the owner of Ala Moana Center and Ward Centers, plans to split itself into two companies as part of a plan to exit bankruptcy that includes a $2.63 billion investment from Brookfield Asset Management Inc.

The proposal would give General Growth equity holders total consideration of $15 a share, the Chicago-based company said in a statement yesterday. Stockholders would receive one new General Growth share with an initial value of $10, plus one share of a new company, to be called General Growth Opportunities, with an initial value of $5 for each share they own. Unsecured creditors would be repaid in full plus interest.

“;This sets the floor in our mind—$15—and you have a sophisticated real estate investor setting that price,”; General Growth President Thomas H. Nolan Jr. said in an interview. “;We are hopeful that our stock will continue to rise, and our existing shareholders will continue to benefit from that.”;

The plan comes after an unsolicited $10 billion takeover bid by Simon Property Group Inc., the largest U.S. shopping mall owner. Under that offer, made public last week, equity investors would have received about $9 a share and unsecured creditors paid in full for about $7 billion. General Growth, the second-biggest U.S. mall owner, said the offer was too low and it would invite others to submit bids.

Brookfield, a Toronto-based company whose holdings include office properties and hydroelectric plants, would have a 30 percent stake in General Growth under the proposal. The plan is backed by General Growth's biggest shareholder, William Ackman's Pershing Square Capital Management LP, the statement said.

The Brookfield plan is subject to definitive documentation and Bankruptcy Court approval. The company may still receive other offers as part of the bankruptcy process, Nolan said.

Sydney, Australia-based Westfield Group declined to comment yesterday on a Wall Street Journal report that the mall owner has started talks about a potential acquisition of General Growth.

Simon Property signed yesterday a non-disclosure agreement to receive information from General Growth, said a person with knowledge of the agreement. Last Friday, Simon called General Growth's draft of the agreement “;unreasonable.”; Simon will be allowed to talk with potential partners, which General Growth had previously barred, the person said.

The bid by Simon Property was an “;initial salvo,”; and the Brookfield plan likely will prompt a new offer from the mall owner, said Jim Sullivan, an analyst with Green Street Advisors Inc., a real estate research company in Newport Beach, Calif.

It's up to Simon to decide if it wants to raise its bid or “;deliver a knockout blow—something that's so good for everybody that the bid will end right there,”; he said.

Simon issued a statement late yesterday arguing the General Growth-Brookfield plan carries risks for unsecured creditors and calling it a “;complex piece of financial engineering that is so highly conditional as to be illusory.”;

Under the proposal, General Growth would split into a company owning shopping malls, such as high-grossing Ala Moana Center, and another that would own buildings and land with redevelopment possibilities.

General Growth Opportunities would have holdings including six master-planned communities, New York's South Street Seaport, and land in Hawaii, Utah and Princeton, N.J., according to the plan's term sheet. In Hawaii, the tentative list includes Ward Neighborhood, a 60-acre master-planned tract in Kakaako that was recently approved by the Hawaii Community Development Authority, and Ala Moana Tower.