market folly

Just now, Bill Ackman's Pershing Square Capital Management filed an amended 13D with the SEC regarding General Growth Properties (GGP).  The main purpose of doing so was to attach a letter to the board of directors that Ackman sent.  In it, he pushes for a sale of the company to either Simon Property Group (SPG), Brookfield, or another party. 

Ackman writes:

"We hereby request that:

- The Board form a special committee of directors wholly unaffiliated with Brookfield to consider the sale of the company to maximize shareholder value.

- The special committee hire independent legal and financial advisors to permit it to manage a process that will maximize shareholder value.

- The special committee permit all interested parties to express their interest in acquiring the company, provide them with access to confidential information to conduct their due diligence, without any standstill restrictions.

- GGP refrain from any future stock repurchases and prohibit Brookfield from participating in or otherwise suspend the dividend reinvestment program to prevent Brookfield from continuing to effectuate a creeping takeover of control without paying a control premium.

- The special committee also consider such other steps that it deems appropriate to level the playing field for potential bidders for the company and to ensure that control is not transferred to Brookfield."


Summary of Ackman's Letter

The letter is quite lengthy and we recommend you read it in full here.  But for summary purposes, here are the Cliff Notes:

- In October of 2011 Simon Property Group (SPG) tried to buy GGP for a 65% premium at the time.

- In November of 2011, Brookfield expressed their interest in acquiring GGP in which they'd sell 68 assets to Simon in order to complete the transaction.  GGP required SPG to enter into a "highly restrictive confidentiality and standstill agreement that, among other limitations, prevents Simon from making offers to acquire GGP or its assets for an extended period of time."

- April/May 2012: Simon rejects the 68 asset purchase & Brookfield seeks to acquire GGP on its own.

- In July 2012, Brookfield said they needed time to raise capital.  After GGP's emergence from bankruptcy, Brookfield has gone from owning 29% to now owning over 38% (or an even higher 42.2% if they exercise their warrants).  Brookfield has raised their stake by purchasing Fairholme Capital's position and receiving shares via GGP's dividend reinvestment program.

- Due to terms of the warrants, Brookfield's stake also effectively increases each time GGP pays a dividend.  Each time that happens, the number of shares underlying the warrants increases and the strike price is reduced.  So Brookfield is slowly acquiring more of the company each time GGP pays a dividend.

- Ackman says it's unfair that Brookfield has had an "unlimited period of time" to consider acquiring GGP while Simon does not have access to inside information and has been cut off from considering a transaction that wouldn't need financing.

- Ackman's not opposed to Brookfield acquiring the company, but he obviously wants a fair process to allow others to bid.

- Ackman points out that if Simon's bid from last year was translated to today's terms, it would "deliver a minimum of $28.01 dollars per share of value, a 51.2% premium to GGP's closing price of $18.52."


In the end, the Pershing founder is just looking for a level playing field to allow Simon and Brookfield (and potentially others) to bid for the company.  So it will be interesting to see how this one plays out.



Don't forget that Ackman will be presenting his latest investment ideas at the Value Investing Congress in New York City in October.  Market Folly readers can receive a discount to the event here with code: N12MF7.