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General Growth Properties Inc. (NYSE: GGP) is on the move after a letter was sent to the company calling for a sale by activist investor (and 2nd largest shareholder) Pershing Square.  Bill Ackman’s firm has sent a letter in a 13D filing calling for the sale of the company, but this is a complicated process as you will see if you look through that 13D filing. Ackman originally saw a $21 value, but now he thinks $28 is right and is asking the General Growth team to form an independent committee that would explore a sale of the company.

The process is complicated because of the moving parts here involving (or potentially involving) Brookfield Asset Management Inc. (NYSE: BAM), Simon Property Group Inc. (NYSE: SPG), The Howard Hughes Corporation (NYSE: HHC), and perhaps others.   Pershing Square is the second largest shareholder General Growth with 72,233,712 common shares, long-term warrants on 18,224,213 shares, and cash-settled swaps on 7,569,272 million shares.  The total would be a combined 10.2% stake in the company.  Here are some alternative transactions stated by Brookfield since it would require time for it to raise enough capital after a July 10, 2012:

• the company’s warrant holders – Brookfield, Pershing Square, Fairholme, and Blackstone – would sell their warrants back to GGP for cash,
• GGP would acquire Aliansce stock held by Pershing Square,
• GGP would pay for the warrant purchase by consummating an equity offering,
• Brookfield would sell its shares and warrants in the Howard Hughes Corporation to Pershing Square or HHC, and
• Brookfield would use the proceeds from the HHC and GGP warrant sale to acquire Pershing Square’s GGP shares.

Brookfield has reportedly suggested that Ackman contact GGP management to discuss the terms of a potential warrant and Aliansce share sale.  Ackman’s letter states, “At present, Brookfield owns 38.2% percent of GGP’s outstanding stock and holds warrants on an additional 6.4% percent of the company (or approximately 42.2% including stock and warrants, assuming the exercise of its warrants).2 It has designated three of the nine directors on the company’s board, which is chaired by Bruce Flatt, Brookfield’s CEO. This high degree of ownership and board representation gives Brookfield enormous influence over GGP; yet Brookfield is not the controlling shareholder of GGP.”

Here is where the real value comes up from the Ackman letter: “If the Simon Transaction were consummated at the same exchange ratio as originally proposed in October of last year based on Simon stock’s yesterday closing price of $158.70, it would deliver a minimum of $28.01 dollars per share of value, a 51.2% premium to GGP’s closing price of $18.52. We note that shareholders would also receive a dividend increase of 68% when the transaction closes and own an interest in a less leveraged, more diversified company with a more liquid publicly traded stock.”

For more information here is the FULL 13D FILING.

General Growth shares are up almost 8% at $19.94, which is still under the first deal valuation and way under the new $28 implied valuation that Mr. Ackman is throwing out there.

JON C. OGG