February 24, 2010 6:15 PM

General Growth Group Wants to Split Itself in Two

Posted by D.M. Levine

Aiming to resurrect itself from the largest real estate bankruptcy filing in U.S. history, the nation's second-largest owner of shopping malls unveiled a new reorganization plan on Wednesday.

Under the terms of the plan, which the company describes in this statement, the restructuring would split General Growth into two new entities, a larger, healthier company called General Growth Properties (GGP) that would control most of the company’s operational assets, and a smaller company called General Growth Opportunities (GGO) that would control some parcels of land and a few shopping malls that are not currently operating, according to sources close to the matter. Under the terms of the agreement, current General Growth shareholders would retain equivalent stakes in both GGP and GGO.

Brookfield Asset Management would invest $2.625 billion in GGP for a 30 percent stake in GGP and $125 million for a 30 percent stake in GGO. 

Brookfield is being represented by Willkie Farr & Gallagher. James Sprayregen and Anup Sathy at Kirkland & Ellis are representing General Growth; Marcia Goldstein and Gary Holtzer are among the lawyers at Weil, Gotshal & Manges acting as co-counsel for General Growth.

The plan, according to The New York Times, is designed to combat a $10 billion hostile takeover bid put forward earlier this month from General Growth competitor Simon Property Group, the largest shopping mall developer in the country.

As previously reported in The American Lawyer, Simon Property Group is represented by a team at Wachtell, Lipton, Rosen & Katz that includes corporate partners Adam Emmerich and Benjamin Roth.

The reorganization plan drew a swift—and negative—response from one of GGP's largest investors, according to the Times's Dealbook blog: the mall operator's unsecured creditors committee. Shortly after the new plan was unveiled, the committee, represented by Akin, Gump, Strauss, Hauer & Feld, objected to it in a bankruptcy court filing.

The committee's key concern, Dealbook reported, is that General Growth is bypassing Simon's $10 billion, mostly cash offer "in favor a ‘lengthy and uncertain’ plan that unfairly privileges shareholders over creditors.”

That objection notwithstanding, GGP president and chief operating officer Thomas Nolan expressed confidence that the reorganization plan represents the mall operator's best option.

“We are excited about the opportunities this recapitalization creates for our company and all of our stakeholders,”  Nolan said in the company's announcement of the plan. “GGP has an extremely strong portfolio of successful properties, while GGO will have a large portfolio of opportunistic assets that have substantial long-term value, as well as certain assets where we believe value can be created through restructuring.”

As noted in GGP's statement and as The American Lawyer reported last year, this agreement follows a restructuring last December of billions in mortgage debt held by General Growth--an arrangement advised at the time by Kirkland, Weil and Venable. 

The plan is subject to bankruptcy court approval. Lawyers involved in the deal either declined to comment publicly or could not immediately be reached.

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