General Growth Properties Inc. , the No. 2 U.S. mall owner, filed an eagerly awaited plan to exit bankruptcy on Wednesday, setting the stage for suitors such as Simon Property Group Inc. to come in with rival bids.
The plan calls for Brookfield Asset Management , Fairholme Capital Management and William Ackman's Pershing Square Capital invest $6.55-billion (U.S.) to bankroll General Growth's exit.
In return the group will get majority interest in a reorganized entity and warrants to buy another 120 million shares.
Toronto-based Brookfield would get a 26 per cent stake in the reorganized company and three of nine board seats, and it could play a larger role in General Growth's future.
Brookfield, an investor in property, power and other infrastructure assets with access to more than $4-billion in liquidity, has offered to provide asset management services for free, assist in corporate finance matters and install one of its own executives to run General Growth Opportunities, a new company that would house non-core assets.
Brookfield made a case for shareholders to back a standalone exit for General Growth, saying the company's shares were undervalued as it not been able to improve operations because of its bankruptcy.
A sale at this time does not maximize value for existing shareholders, it said.
"We believe this is one of the great real estate value opportunities currently available in the capital market," Brookfield Chief Executive Bruce Flatt said.
Indeed others are eyeing General Growth's more than 200 malls and the filing is likely to be the starting gun for them to jump into the fray - something they may do so soon.
These suitors have an incentive to come up with rival bids before the proposal becomes a court-approved offer, as once the warrants are given it would make doing so more expensive.
A hearing on its proposal is set for April 29 and objections to the plan are due by April 22.
Simon, which had initially made a $10-billion takeover offer for General Growth, has been weighing a higher bid. A new offer could see Simon partnering with Blackstone Group and sovereign wealth funds.
Another group of investors including Elliott Management and Paulson & Co is also interested in coming in with an offer to help fund General Growth's exit from bankruptcy.
Excluding the warrants, the company's existing shareholders will get 34 per cent of the equity of reorganized General Growth and 86 per cent of the equity of General Growth Opportunities.
The shareholders get $15 per share in stock, with $5 per share coming from General Growth Opportunities.
Fairholme and Pershing will invest $2.8-billion and $1.1-billion for 28 per cent and 11 per cent, respectively, of the reorganized company. Their investment however can be reduced to $1.9-billion if General Growth is able to raise the remaining money elsewhere on more favourable terms.
General Growth said the equity investment and anticipated new debt of $1.5-billion - or the reinstatement of a comparable amount of existing debt - would bring it the cash needed to allow the company to emerge from bankruptcy.
Unsecured creditors will get par plus accrued interest on their claims under the plan.