NEW YORK - General Growth Properties Inc unveiled a bankruptcy exit plan bankrolled by Brookfield Asset Management that would split it in two, as the mall owner dug in its heels against a competing proposal.
Under the plan, Brookfield would invest $2.625 billion in General Growth, the No. 2 U.S. mall owner, in return for a 30 percent stake and the right to nominate three directors.
William Ackman, an investor and General Growth board member, would also offer Toronto-based Brookfield some protections and even share some of his profits with Brookfield under certain conditions.
The plan values General Growth at $15 per share, topping a $9-per-share offer by Simon Property Group. It would repay holders of about $7 billion of unsecured debt in full with interest. Under the plan, unsecured creditors would be paid in cash and stock, but General Growth also hoped to raise up to $5.8 billion more to repay these unsecured creditors in cash.
The plan drew some skepticism, with one investor saying public markets would want more information, such as details about the portfolio, balance sheet and management team, before they invested in the company.
General Growth's shares were off 0.2 percent at $12.95, below the plan value.
We're talking about very large numbers to make this work, said Robert Gadsden, portfolio manager at Alpine Realty Income & Growth Fund, which owns GGP shares. Frankly, from both the unsecured bondholders standpoint and any new equity there's more question marks here.
The plan to exit bankruptcy, which comes a week before a crucial court hearing on March 3, sets the stage for what could turn into a bidding war for the bankrupt mall owner, whose more than 200 malls include such properties as Fashion Show in Las Vegas, Ala Moana Center in Hawaii and Faneuil Hall Marketplace in Boston.
I don't think David Simon is going to say it's his best and final (offer), Gadsden said. It was a start. At least we're starting to make some progress.
GENERAL GROWTH OPPORTUNITIES
The exit plan calls for existing General Growth shareholders to receive shares valued at $5 each in a new company, General Growth Opportunities. The new company would house noncore assets such as all the master planned communities and some developments like South Street Seaport in New York.
Brookfield would invest $2.5 billion at $10 per share for new General Growth shares and up to $125 million at $5 per share for General Growth Opportunities common stock. It would get as much as a 7 percent stake in General Growth Opportunities.
General Growth, which became the biggest real estate failure in U.S. history when it filed for bankruptcy in April, would try to raise additional capital through a combination of means, including about $2.8 billion of equity, $1.5 billion of new debt and $1 billion of joint venture and other asset sales.
Simon has offered to pay the unsecured creditors cash, which could be a key to whom the bondholders back.
As consideration for acting as stalking horse in the company's process to raise capital, Brookfield would receive seven-year warrants to purchase 60 million shares at an exercise price of $15 per share.
Until the warrants were approved by the bankruptcy court, Ackman's Pershing Square Capital Management would provide interim protection to Brookfield.
If General Growth completed a transaction with another party at more than $12.75 per share, Pershing Square would pay Brookfield 25 percent of its profits from its investment in General Growth above that value.
Pershing Square owns about 25 percent of General Growth stock and has made a killing on its investment in the company.
We think this is a good outcome for all our stakeholders, General Growth Chief Executive Adam Metz told Reuters. It provides for par plus accrued cash payment to our unsecured creditors and it provides a good baseline valuation for our shareholders.
UBS and Miller Buckfire & Co advised General Growth, while Goldman Sachs and Barclays Capital advised Brookfield.
Simon was off 0.6 percent at $77.46 during afternoon trading. Brookfield slid 0.5 percent to C$24.04 during late afternoon trading on Wednesday. (Editing by Maureen Bavdek and Steve Orlofsky)