Brookfield to buy Fairholme's General Growth stake

NEW YORK Tue Jan 18, 2011 2:18pm EST

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NEW YORK (Reuters) - The Fairholme Fund, run by value investor Bruce Berkowitz, struck a $1.7 billion deal to sell its remaining shares in General Growth Properties Inc (GGP.N) after bankrolling the mall owner's emergence from bankruptcy last year.

The deal with Brookfield Asset Management Inc (BAMa.TO) sent General Growth shares lower, off 1.3 percent to $14.90 in afternoon trading, while the benchmark MSCI U.S. REIT Index .RMZ was up 0.2 percent.

"You have Bruce Berkowitz, a deep value investor, selling its shares in GGP. It could view GGP shares to be richly priced and probably sees more attractive alternative investments elsewhere," said Keefe, Bruyette & Woods analyst Benjamin Yang. Yang has an "underperform" rating on General Growth shares.

Fairholme already has turned its attention elsewhere, buying up shares of Florida Panhandle land owner St. Joe Co (JOE.N). That investment has become a face-off between Berkowitz and Greenlight Capital hedge fund manager David Einhorn, who is shorting St. Joe, betting the stock will fall.

St. Joe shares were up 4.1 percent to $26.30.

General Growth shareholders may be concerned about Brookfield's increased stake -- rising to 38 percent from 27.5 percent -- and its growing influence over the company, according to UBS analysts.

"The ownership stake also discourages potential suitors," UBS analysts said in a research note.

Brookfield's overall ownership is limited to 45 percent, Brookfield said.

Fairholme's exit from General Growth was expected, "just not this soon," Yang said. Other General Growth investors, such as Blackstone Group LP (BX.N) and even hedge fund Pershing Square Capital Management, also may not be long-term investors, he added.

Brookfield's purchase may have been protective. "At the end of the day, these guys probably don't want all these shares hitting the open market," Yang said.

"At some point, Brookfield cannot continue to buy, and shares are going to have to hit the open market. It's going to create some selling pressure in the stock," Yang said.

Under the deal, funds Brookfield manages will purchase Fairholme's 113.3 million shares of the second-largest U.S. mall owner, Canada-based Brookfield said on Tuesday. China Investment Corp, China's sovereign fund, is an investor in the Brookfield funds.

The deal calls for Brookfield to issue 27.5 million Class A shares valued at $907 million to Fairholme and pay $804 million in cash for the General Growth shares. The deal would give Fairholme a 4.5 percent equity stake in Brookfield.

(Additional reporting by Tom Hals; editing By Gerald E. McCormick and Tim Dobbyn)

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