Pershing Square says General Growth should consider sale

BOSTON/NEW YORK Thu Aug 23, 2012 6:52pm EDT

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BOSTON/NEW YORK (Reuters) - Hedge Fund manager William Ackman on Thursday said mall operator General Growth Properties should put itself up for sale and noted that at least one potential bidder would value it at 51 percent above its current share price.

Ackman said that David Simon, chairman and chief executive of No. 1 U.S. mall owner Simon Property Group Inc, might want to buy its smaller rival at a significant premium.

The famed investor, who runs $10 billion Pershing Square Capital Management, revealed the suggestions in a letter to General Growth that was made public in a regulatory filing.

Pershing Square owns roughly 10.2 percent of General Growth.

General Growth said in a press release later in the day that it "will carefully review Pershing Square's letter."

Ackman approached Simon with the plan for a possible sale, a person familiar with situation said, who declined to be identified because of the private nature of the discussion.

General Growth's shares rose on the news, closing up 10 percent to $20.32 - their highest level since the company emerged from bankruptcy in November 2010.

If a deal was reached at the same exchange ratio proposed in October 2011, when it was first discussed, Simon would be paying $28.01 a share for General Growth, whose signature properties include Tysons Galleria in Washington D.C., Glendale Galleria in Los Angeles and Water Tower Place in Chicago, the letter said.

Ackman said in the letter that if a sale talked about by him and Simon Property Group nearly a year ago was sealed at the same conditions, shareholders would receive a 51.2 percent premium over General Growth's closing price on August 22.

That proposal discussed between Simon and Ackman did not gain transaction because Brookfield Asset Management, which has a 42.2 percent stake in General Growth, failed to sign off on the deal.

Instead, Brookfield had said it would be interested in buying General Growth.

In response to Ackman's letter, Brookfield said that "it is not taking any steps to acquire GGP nor is it having any discussions with third parties in that regard." However, it also said that in the last 12 months it has considered and discussed possible transactions which would facilitate Pershing Square's desire to maximize the value of and create liquidity for its interest in General Growth.

ACKMAN'S BEST BET

Ackman's General Growth holding has been his single best investment bet - earning a 77-fold return on his initial investment.

"The one thing that (Bill Ackman) has achieved is he's just raised the price for Brookfield to take the company over. In that regard I think he is performing a service for all the other shareholders and enriching himself in the process," said Jeung Hyun, principal and portfolio manager at Adelante Capital Management, which owns General Growth shares.

In his eight-page letter, Ackman, known for making a few concentrated bets and then urging companies to shape up to boost the share price, said he only wants things to be fair.

"Our goals are to ensure that a level playing field exists so Simon, Brookfield, and potentially other parties can compete to acquire the company," Ackman wrote to General Growth's board of directors on Thursday.

Ackman also urged the company to take steps to block Brookfield from taking "de facto" control of the company.

Brookfield and Simon have a history of battling for General Growth. When General Growth emerged from bankruptcy two years ago it was Brookfield's plan that helped revive the No. 2 U.S. mall owner.

As Brookfield's stake, which started at 29 percent, grew however, Ackman worried that Brookfield might be getting special perks. For example, the fund manager wrote that General Growth's chief executive was making presentations alongside Brookfield to potential equity investors to help Brookfield raise capital for future deals.

"Once Brookfield indicated that it was interested in acquiring the company, its interests diverged with those of the other GGP shareholders," Ackman wrote, adding "We, other shareholders, and the board must therefore take a more vigilant and proactive role in protecting our interests."

With General Growth's stock price surging, Ackman's Pershing portfolio is sure to get a shot in the arm. His other big investment in retailer J.C. Penney is trading only modestly above the price where he started buying the stock two years ago.

In his letter, Ackman was careful to say that he is not accusing Brookfield or General Growth of any wrongdoing in connection with the possible sale and that he only has the shareholder's interest in mind.

"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 stakes," he said in the letter.

(Reporting By Svea Herbst-Bayliss; editing by John Wallace, Bernard Orr)

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