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May 7, 2010 5:32 PM

Court Agreement Ends GGP Bankruptcy Bid Battle

Posted by Ed Shanahan

By Robert Carr

Ending one of real estate's most protracted takeover battles, bankruptcy judge Allan Gropper, in the Southern District of New York, agreed Friday to allow Chicago-based General Growth Properties, a mall real estate investment trust, to partner with Brookfield Asset Management of Toronto in an $8.5 billion reorganization plan.

The decision sets Brookfield as the “stalking horse” bidder, and ends an aggressive takeover attempt by GGP’s main retail rival, Simon Property Group of Indianapolis. Simon announced a last-ditch offer late Thursday night of $20 a share to take over GGP, even though General Growth hasn’t seen that price since late 2008. GGP’s stock closed Friday at $14.13 a share.

Brookfield has pledged to help bring GGP out of bankruptcy by purchasing GGP stock at $10.50 per share, resulting in a $6.5 billion equity investment and $2 billion capital backstop offer, which includes assistance from Pershing Square Capital Management and Fairholme Funds. The Brookfield deal comes with several million dollars in warrant fees to GGP, though Brookfield has agreed to postpone some of the costs.

Joseph Forte, a partner with Alston & Bird, said Gropper’s ruling ensures that the secured and nonsecured creditors will be recompensated. Forte had submitted an amicus brief on behalf of the Commercial Mortgage Securities Association and the Mortgage Bankers Association. “The creditors’ interests are now protected,” Forte said. “Though the competition between Brookfield and Simon did improve the deal for the GGP shareholders.”

Simon issued a statement after the hearing that it is now out of the entire GGP bankruptcy process. "We are disappointed that the GGP board hastily decided in less than 24 hours to accept substantially less value, rather than take more time to fully assess the benefits of SPG's offer and enter into negotiations to make this value available to GGP shareholders,” said David Simon, chairman and CEO.

"GGP's decision to move forward with the latest Brookfield-sponsored change of control recapitalization, without giving due consideration to SPG's proposals, is a truly unfortunate result for all GGP stakeholders. The transaction approved today values GGP at a minimum of $5 less per share than SPG's $20 per share offer, when accounting for the highly expensive and dilutive warrants to be issued to the Brookfield consortium,” Simon said. “In addition, SPG's recapitalization proposal offered the certainty GGP desired along with an $11.00 per share value, which is also substantially higher than what GGP shareholders will receive under the plan approved today, after taking the highly expensive and dilutive warrants into account."

Also Friday, William Ackman’s Pershing Square, in part to keep GGP from considering the latest Simon offer, agreed to forego Pershing’s right to receive interim warrants to purchase 17 million shares of GGP as consideration for its stock purchase commitment in support of GGP's stand-alone plan of reorganization--in effect, giving up more than $120 million. “For GGP to hand over its keys to its main competitor subject to government approval is reckless in our view. SPG has as much, if not more, to gain from the destruction of General Growth than from its acquisition,” Ackman said.

A General Growth spokesman declined to comment for this story. 

Weil, Gotshal & Manges and Kirkland & Ellis advised General Growth. Willkie Farr & Gallagher advised Brookfield. Simon is represented by Wachtell, Lipton, Rosen & Katz.

Venable bankruptcy lawyer Gregory Cross was named a 2010 Dealmaker of the Year for his work as the secured creditors' coordinating counsel.

Robert Carr is an editor at GlobeSt.com, a sibling publication. He is a contributing writer for americanlawyer.com. His most recent post was about Sunwest's bankruptcy woes.

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