NEW YORK Activist investor William Ackman is doubling down on General Growth Properties (GGP.N) and however the current battle for the second-largest U.S. mall owner turns out, his hedge fund will likely emerge as a big winner.
Ackman's Pershing Square Capital Management and fund manager Fairholme Capital Management have agreed to invest up to $3.925 billion more in General Growth to help it emerge from bankruptcy as a stand-alone company.
Brookfield Asset Management (BAMa.TO), a Toronto-based property and infrastructure investor, is also helping to bankroll that effort.
The new financing plan is a blow to Simon Property Group (SPG.N), the largest U.S. mall owner, which has made a $10 billion offer to buy General Growth in bankruptcy.
Ackman and Fairholme's offer increases Simon's costs to buy General Growth by granting warrants to the two investors that any rival bidder would have to buy back. These warrants are similar to those being offered to Brookfield, and Simon has estimated the Brookfield warrants alone are worth more than $300 million.
The Ackman offer also removes a key advantage that Simon's bid had. General Growth, like Simon, can now offer unsecured creditors cash for their claims, instead of the cash and stock it had proposed earlier.
Unsecured creditors who have backed Simon's bid could drop their opposition to General Growth's plan now, provided there are no contingencies around the cash payout, a source close to the unsecured creditors said.
That brings the fight down to winning over General Growth's shareholders. If Simon still wants to buy General Growth, it really only has two options: boost its $9-a-share bid on its own, or find a partner and boost its bid, experts said.
"They have to do something to raise the price," said John Mallin, head of the real estate practice at law firm McCarter & English. Mallin added that he did not think Simon would walk away without making a better offer.
Australia-based Westfield Group WDC.AX and several institutional investors have signed agreements to look through General Growth's books.
Westfield, the world's biggest mall owner, is probably not interested in the whole company, real estate experts say. It may instead want to partner up to acquire certain assets.
"Is it possible that a company like Westfield and Simon might make a joint bid to, if you will, split the empire?" Mallin said. "It's certainly possible."
Westfield has declined to comment on General Growth. Brookfield and General Growth declined to comment. Simon and Pershing Square were not immediately available.
Ackman, who has said General Growth is worth between $24 and $43 per share, feels strongly enough about the owner of more than 200 malls to give up some of his control of the company.
He stepped down from General Growth's board to avoid potential conflicts as the company evaluates bids.
Ackman and Simon have crossed paths before. Last year during Target Corp's (TGT.N) bitter proxy fight with Pershing Square, Simon came down on the side of the retailer.
Now, even if Simon wins, Pershing Square will make a tidy profit. Ackman is General Growth's largest shareholder, having exposure to about 25 percent of the company.
He bought in at an average cost of less than a dollar a share, while General Growth's shares currently trade at $14.55.
(Reporting by Dan Wilchins and Paritosh Bansal; Editing by Steve Orlofsky)