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Squabble at the mall: Ackman takes on Brookfield

Bill Ackman of Pershing Square Capital Management


Another Canadian company is caught in a showdown with Bill Ackman, as Brookfield Asset Management Inc. faces off with the activist investor over the fate of one of the biggest shopping-mall owners in the U.S.

Mr. Ackman, best known in Canada for his successful campaign to turf the CEO and several board members of Canadian Pacific Railway Ltd. this year, wants the mall operator, General Growth Properties, to put itself up for sale to stymie what he says is a creeping takeover by the Toronto company. Brookfield owns 40 per cent of GGP; Mr. Ackman owns 10.

His allegation – that Brookfield wants to grab control of the mall owner on the cheap – was made in a letter to General Growth's board that was filed Thursday with U.S. regulators. In the letter, Mr. Ackman suggests that rival Simon Properties would pay up to own General Growth in a transaction that would create by far the biggest U.S. shopping mall landlord.

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Brookfield, however, says it has no plans to buy GGP, and no desire to sell. That leaves Mr. Ackman and Brookfield, once allies in helping General Growth escape financial troubles, at loggerheads.

"Brookfield is not taking any steps to acquire GGP nor is it having any discussions with third parties in that regard," the company said in a release in response to Mr. Ackman's letter. "B rookfield has no interest in selling its stake in GGP."

The Ackman filing and Brookfield response lay bare a growing rift between the sides, the result of their different investment philosophies. Brookfield is said to be happy with its investment in General Growth and in no rush to sell, as a long-term investor accustomed to holding assets such as office towers and power dams for decades. Mr. Ackman, who heads Persh ing Square Capital Management, a hedge-fund company, has made a 77-fold return on his initial stake in General Growth and is now looking for one last jump in the stock price before he moves on to other investment ideas.

"We are highly confident that a transaction can be negotiated that provides an enormous initial premium to GGP's current market value," Mr. Ackman said in his letter to General Growth's board, which was filed with the Securities and Exchange Commission.

General Growth ran into trouble in the financial crisis, and was forced to seek protection from creditors when it could not roll over its debt. Mr. Ackman engineered a restructuring, and helped bring in Brookfield as a strategic partner when General Growth Properties needed money. The turnaround has been a success, and today the business has a market capitalization of about $19-billion (U.S.).

The question for Mr. Ackman is whether he can successfully force a sale to someone other than Brookfield. Besides its stake, Brookfield has three seats on the nine-member General Growth board, and Brookfield head Bruce Flatt is the chairman of General Growth.

Mr. Ackman may simply be using the letter "as a wedge to get out of General Growth," said Rich Moore, an analyst with RBC Capital Markets in Solon, Ohio, who told Bloomberg News that he doesn't expect General Growth will be sold.

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Elsewhere in the letter, Mr. Ackman wrote that "we are not accusing Brookfield or the company of wrongdoing in connection with the company's potential sale. We have enormous respect for Brookfield and its principals as well as for GGP management.

"However, once Brookfield indicated that it was interested in acquiring the company, its interests diverged with those of other GGP shareholders. We, other shareholders, and the board must therefore take a more vigilant and pro-active role in protecting our interests."

Mr. Ackman has been working since late 2011 to engineer a deal with Simon. He said that when Brookfield was made aware of the potential deal with Simon in November, Brookfield said it would not support a sale to Simon and instead would be interested in buying General Growth.

In April, Mr. Ackman said that Brookfield presented a deal that would see the Canadian company buy General Growth, while selling 68 malls to Simon to raise the needed cash. However, Simon took a pass on that idea, leaving Brookfield to try to raise the money on its own.

As of July, Mr. Ackman said that Brookfield declared it would need more time.

Brookfield said it looked at "a variety of possible transactions" that would help Pershing Square by maximizing its sale price, but "these discussions are not continuing."

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