Brookfield Asset Management Inc. has joined hands with one of North America's most feared shareholder activists to launch a $2.63-billion (U.S.) bid for General Growth Properties Inc. that is expected to trigger an auction for the shopping mall giant.
William Ackman, who owns a 25-per-cent stake in General Growth, has been actively courting buyers for months for the company, which has been operating under bankruptcy protection since last April. Now, as part of a complex arrangement unveiled yesterday, he has enticed Brookfield to invest for a 30-per-cent stake.
The deal sets up the Toronto company as a stalking horse to attract richer bids from other buyers. In order to bring Brookfield in, Mr. Ackman has committed to an unusual profit-sharing agreement. His New York-based investment firm, Pershing Square Capital Management, has agreed to hand 25 per cent of its investment profits in General Growth over to Brookfield if a competing bidder nets the company with a bid that exceeds $12.75 a share.
With the Canadian firm already at the table with an offer valued at $15 a share, Mr. Ackman's inducement means Brookfield could pocket a sizable profit if its bid is trumped.
Indeed, analysts were quick to question Brookfield's offer, which calls for General Growth to refinance its debts by raising an additional $5.5-billion from investors through stock, rights and debt sales. The shopping mall company was forced to file for court protection from its creditors last year after it struggled with payments on $27-billion of debts.
"This isn't a real offer that was made by Brookfield," says David Fick, a real estate analyst at Stifel Nicolaus. "This is only a bid to create a bid."
Brookfield's move puts pressure on Simon Property Group Inc., the largest U.S. shopping mall owner, to improve its offer last week to pay $10-billion or $9 a share to shareholders, an overture General Growth dismissed as inadequate.
The significant behind-the-scenes role of Mr. Ackman is believed to mark the first time that the activist has taken his shareholder tactics to the confrontational arena of bankruptcy proceedings. Shareholders are typically pushed to the side in bankruptcy proceedings because creditors and other debt holders have stronger claims to company assets.
Mr. Ackman could not be reached for comment.
By actively soliciting potential buyers such as Brookfield, Mr. Ackman is apparently seeking to cash in the big bet he made in General Growth in 2008, when he identified the company's stock and debt as undervalued.
Mr. Ackman is well known for his sometimes bruising campaigns in Canada and the United States to lobby a company's leaders to change direction or sell assets to unlock value.
Markets are keenly attuned to Mr. Ackman's pronouncements. Earlier this month, he told a television interviewer that he believed there was a low probability that bookstore chain Borders Group Inc. would file for bankruptcy. Borders shares shot up 40 per cent in response.
He was instrumental in stopping a controversial bid by Hoffman Estates, Ill.-based Sears Holding Corp. to buy out the minority shareholders of its Canadian subsidiary in 2006. He also pushed Wendy's to spin off its doughnut chain, Tim Hortons Inc., a process that was concluded in 2006. He has also targeted companies such as U.S. retailer Target Corp. and restaurant chain McDonald's Corp.