Dow Jones Newswires-WSJ | Canadian property giant Brookfield
Asset Management Inc. is readying a bid to take a large stake in U.S.
mall owner General Growth Properties Inc., according to several people
familiar with the matter, aiming to top an unsolicited bid made last
week by mall rival Simon Property Group Inc.
Brookfield’s planned bid, which could be unveiled as soon as this week,
would allow General Growth to exit Chapter 11 bankruptcy proceedings as
a standalone company, with Brookfield as its largest shareholder, these
people said.
The Simon bid values General Growth equity at about $3 billion, or about $9 a share. Simon would also pay off in cash the company’s unsecured creditors, who hold $7 billion in debt, valuing General Growth at around $10 billion.
Brookfield’s plan, while still being worked out, would value General Growth equity at a little more than $3 billion, the people familiar with the matter said. Unsecured creditors, however, would have to accept equity in General Growth, along with some cash.
The plan would make Brookfield the largest buyer in a massive stock sale General Growth intends to make to raise capital for emerging from bankruptcy court. Brookfield would invest at least $2 billion, these people said, though some of that would likely include forgiving General Growth debt currently held by Brookfield.
The size of Brookfield’s proposed ownership stake and the value it will attach to General Growth couldn’t be learned.
Brookfield, which has been readying a bid for some time, has lined up a consortium of other investors, many of whom are already General Growth debt holders, said people familiar with the matter. They didn’t identify those investors. “It is a friendlier, more consensual deal from the General Growth point of view,” one of the people said.
The ultimate amount of stock that General Growth would sell hasn’t been determined. Brookfield wants to be a “substantial investor in the company,” said a person familiar with the situation, with an eye toward operating General Growth and expanding it.
In rejecting Simon’s bid last week, General Growth executives said they intended to look into all options for exiting bankruptcy, including soliciting other buyout bids and selling stock to raise money for paying debts.
A spokesman for Simon said its bid was the better option for General Growth. “Simon’s firm, fully financed $10 billion offer provides immediate 100% cash recovery of par value plus accrued interest and dividends to all unsecured creditors, plus more than $9 per share in value to shareholders. It is the only offer which provides a full cash recovery for unsecured creditors while reducing risk and providing potential upside,” the spokesman said.
Chicago-based General Growth sought Chapter 11 bankruptcy last April after failing to refinance portions of its $27 billion debt as they came due. The competing efforts of Brookfield and Simon come ahead of a key March 3 hearing in its bankruptcy case.
At the hearing, U.S. Bankruptcy Judge Allan Gropper is to decide whether and by how much to extend General Growth’s exclusivity period. During that period, only the company’s board can propose plans for exiting bankruptcy. Once the period expires, creditors and outside parties can do so.
Brookfield’s plan is likely to get mixed reactions from General Growth’s creditors. It is unlikely that General Growth’s stock sale will raise as much as $7 billion and that all of that money would be used to pay unsecured debt. Thus, General Growth’s strategy is likely to call for paying part of its creditors’ claims in cash and the balance in stock, people familiar with the matter said. That would appeal to creditors who wanted the potential to reap more than what they are owed if the stock rises.
Simon, based in Indianapolis, has offered to pay the unsecured claims entirely in cash. That appeals to some creditors who want to immediately settle their claims and prefer not to gamble on the stock rising.
Further complicating matters: Brookfield last year bought roughly $1 billion of General Growth’s unsecured debt, giving it a voice among General Growth’s creditors. Simon, too, has bought some of the debt, but how much isn’t known. Brookfield is being advised on its bid by Goldman Sachs Group and law firm Willke, Farr & Gallagher, people familiar with the matter said.
The unsecured creditors will be one of many constituencies the judge weighs when he determines which plan best suits all of General Growth’s creditors and shareholders. It remained unclear whether the judge would allow a Brookfield plan to compete with Simon’s offer, since it wouldn’t pay unsecured creditors in cash. But if enough creditors preferred getting a chunk of stock instead of cash, Brookfield could attempt to seek enough votes to confirm the plan, assuming the judge allows creditors to vote on it.
Toronto-based Brookfield manages more than $98 billion in assets, specializing in infrastructure, power plants and commercial property. It has long coveted retail property in the U.S., having made a failed bid for discount-mall owner Mills Corp. in 2007. And It bid unsuccessfully to provide General Growth with emergency financing when the mall owner sought bankruptcy last year.
In the past year, Brookfield has raised roughly $5 billion, mostly from institutional real estate investors contributing to its newly created fund for making acquisitions.
– By Jeffrey McCracken And Kris Hudson Of THE WALL STREET JOURNAL
