(By Balachander) Pershing Square Capital Management LP, the hedge fund controlled by Bill Ackman, said General Growth Properties Inc. (NYSE:GGP) should consider selling itself to maximize shareholder value. GGP shares soared 10 percent on Thursday.
A regulatory filing showed Pershing owned 10.2 percent of the Chicago, Illinois-based second largest U.S. mall owner, which emerged from bankruptcy in late 2010.
Pershing and Brookfield Asset Management Inc. were part of a group that helped General Growth come out of bankruptcy.
During the bankruptcy, the largest U.S. mall owner Simon Property Group Inc. (NYSE:SPG) made a number of attempts to acquire GGP. Late in 2011, Brookfield said it would be interested in acquiring GGP, potentially in partnership with Simon and then sought for periodic extensions of time to analyze such a potential transaction.
In April 2012, Brookfield presented a proposed transaction to Simon whereby Brookfield would acquire GGP and finance the transaction with proceeds from the sale of 68 of GGP's malls to Simon when combined with equity capital from Brookfield and its partners.
In late April or early May, Pershing learned from Brookfield that Simon had rejected the purchase of the 68 assets on the proposed terms because Simon objected to Brookfield's selection of assets and believed the price was too high.
"Brookfield thereafter explained to us that it would now seek to acquire GGP on its own, and that it would therefore need additional time to raise the required capital to consummate a transaction without Simon, Pershing said in a filing with the Securities and Exchange Commission. "Brookfield said that, as part of a new transaction, it would consider a sale of 14 of GGP's best assets to Simon or other potential buyers to raise some of the necessary capital."
Last month, Brookfield proposed an alternative series of transactions that would happen contemporaneously to which Pershing expressed concern about the complexity and fiduciary issues associated with the consummation of the combined transactions.
Pershing disclosed that it was not interested in selling GGP stock other than at a substantial premium.
Brookfield has gone from owning 29 percent of GGP to 42.2 percent, Pershing said.
"It is only a matter of time before Brookfield de facto controls the company," Pershing said. "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," Pershing said.
Pershing sought GGP to form a special committee of directors wholly unaffiliated with Brookfield to consider the sale of the company. The New York-based hedge fund also wants GGP to hire independent advisors to permit it to manage a process.
GGP shares jumped $1.86 to trade at $20.38 on Thursday. The stock has been trading between $10.68 and $21.12 over the 52-week period.