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Brookfield Asset Management Inc. Chief Executive Officer Bruce Flatt speaks at their annual general meeting for shareholders in Toronto, May 5, 2010. (MARK BLINCH/REUTERS)
Brookfield Asset Management Inc. Chief Executive Officer Bruce Flatt speaks at their annual general meeting for shareholders in Toronto, May 5, 2010. (MARK BLINCH/REUTERS)

Brookfield puts faith in General Growth's future Add to ...

The largest shopping mall owner in the United States is in for years of "very significant" growth, Brookfield said ahead of a bankruptcy court judge's ruling on its takeover offer for General Growth

Chicago-based General Growth has been operating in bankruptcy protection for months, but Brookfield's interest predates the recession, chief executive officer Bruce Flatt said at the company's annual meeting Wednesday.

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Its takeover offer is underpinned by Toronto-based Brookfield's belief that General Growth was taken down by too much debt, not operational problems at its 204 U.S. shopping malls.

"General Growth has fantastic assets and great people," Mr. Flatt said. "It took five individuals a lifetime to build, but $32-billion in debt was all it took to wipe it out."

Dispelling the idea that Brookfield would be content to lose a bidding war to Simon Property Group Inc., Mr. Flatt said Brookfield's goal is to win the bidding and operate the malls as the U.S. recovery draws shoppers back into malls.

Even failure could be profitable for Brookfield, which has a stake in General Growth's debt. Those bonds have increased in value as it became clear the company was going to be worth a lot even in court protection. The company's convertible bonds have jumped from less than five cents on the dollar in early 2009 to 103 cents on the dollar of late.

General Growth's board said earlier this week that it favours Brookfield as a partner, a position it hopes a judge will endorse Friday. If the judge decides Brookfield's plan is best suited to satisfy both creditors and shareholders, its offer would stand unless Simon Properties changes its terms.

Brookfield's plan would see it and its partners offer about $15 a share for General Growth, but also receive warrants that would vest gradually at different prices. It also guarantees financing that would allow the mall operator to emerge from bankruptcy as a standalone company.

Simon Property, meanwhile, has offered $18.25-a-share cash-and-stock bid that would also inject billions into the company to pay debt. However, there are some concerns that the newly merged company, which would consist of 500 malls, would face antitrust hurdles. A Simon Property spokesperson was not available for comment Wednesday.

"Such an investigation is likely to take a number of months with no certainty of the outcome," General Growth wrote in a court filing earlier this week.

There's another key difference between the two offers, Mr. Flatt said. Shareholders would essentially be bought out under Simon's proposal, instead of benefiting from the years of upside he's convinced are on their way.

"There are very significant gains over the next five to seven years to accrue to all shareholders," he said. "It's very simple - our competitor offered a plan to buy out shareholders. Our plan sees them come out of bankruptcy protection in six months as the recession abates as sales increase and revenue heads up."

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