General Growth Saga Just Beginning (GGP, BAM, SPG, HHC)

When Pershing Square Capital Management filed a Form 13D with the SEC yesterday related to its ownership interests in General Growth Properties Inc. (NYSE: GGP), Pershing Square’s Bill Ackman included a letter to GGP’s board that reviewed the history of GGP since it’s bankruptcy filing and concluded with a statement regarding a potential transaction with Simon Property Group Inc. (NYSE: SPG) in the fall of 2011:

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.

As we noted yesterday, the discussions among GGP, Pershing Square, Brookfield Asset Management Inc. (NYSE: BAM) and the Howard Hughes Corp. (NYSE: HHC) have a lot of moving parts, but here’s Pershing Square’s main point:

Brookfield has gone from owning 29.0% of the company at emergence to 42.2% today. It is only a matter of time before Brookfield de facto controls the company. This inevitability is totally inconsistent with the intent of the parties at the time the original Brookfield investment was negotiated. More importantly, if control of the company is ceded to Brookfield, shareholders will suffer enormous and irreparable harm for they will lose the ability to capture an appropriate control premium for their shares.

Ackman then says that GGP and Brookfield have been making joint presentations to potential equity investors to raise the capital that would allow Brookfield to control GGP.

In a brief statement today, Brookfield denies Ackman’s claim:

Brookfield is not taking any steps to acquire GGP nor is it having any discussions with third parties in that regard. Brookfield has no interest in selling its stake in GGP. We are 100% supportive of the current management team of GGP and believe that GGP’s business plan has and will continue to create significant long term value for all stakeholders.

In its own statement today GGP said:

The GGP Board of Directors and its management team are committed to acting in the best interests of the Company and all its shareholders, and we regularly engage with all our shareholders. We will carefully review Pershing Square’s letter.

The action is just getting started.

GGP shares popped 10% yesterday but have given back about half of that in the first few minutes of trading this morning. Shares are now trading at $19.47 in a 52-week range of $10.68 to $21.12.

A copy of Ackman’s letter is available here.

Paul Ausick