Bill Ackman

Here’s more on Bill Ackman’s problems with Brookfield’s Asset Management Inc. (NYSE:BAM) (TSE:BAM.A) stake in General Growth Properties Inc (NYSE:GGP).

He has written to the Board of Directors of General Growth Properties Inc (NYSE:GGP) seeking to put in perspective “the confusion that has arisen as a result of Brookfield’s press release in response to our letter of last Thursday, which has led to inaccurate press and analyst reports and contributed to GGP’s Friday stock price decline.” The letter is the subject of a filing with the SEC.

First some background.

Pershing Capital owns about 10 percent of GGP, and fellow owner Brookfield Asset Management about 42 percent. On August 23, Ackman proposed to the GGP that it should put itself up for sale. In response Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A) said it was not taking any steps to acquire GGP, and that it supported the current management. Unfortunately this does not sit well with their apparent strategy to continuously increase their stake through a dividend reinvestment plan, and their acquisition of the stake of Fairholme. This is the grouse of Ackman – that Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A) has not paid anything by way of control premiums and they are jockeying into a position whereby they will soon be in control, with over 50% of holdings. Brookfield also did not let Ackman engineer an appropriate sale to mall operator Simon Property.

The points Ackman makes in today’s filing are as follows.

Pershing Square at no time entered into conversations with Brookfield Asset Management Inc. (NYSE:BAM) (TSE:BAM.A), Simon, or otherwise to create liquidity for its exit from investments in General Growth Properties Inc (NYSE:GGP).

He provides background on the “Simon Transaction” – a route by which shareholders of GGP could receive almost $21 per share, a premium of 65% to the then prevailing price of $12.70 per share. He also details Brookfield’s manipulations of getting Simon out of the picture by getting him to sign a ‘standstill’ agreement. The net result is that only Pershing Square and some independent board members of GGP stand between Brookfield and control of GGP.

Ackman objects to the insinuation in Brookfield’s press release that Pershing Square is a short term investor looking to cash out. On the contrary, Brookfield, according to Ackman is “an investment advisor whose business model is to grow its third-party assets under management. Among other factors, Brookfield shareholders judge the company based on its growth in assets under management. Because Brookfield receives annual fees for overseeing the investment of third-party capital, it is not interested in a transaction which would require it to monetize its interest in GGP after only two years of collecting fees when compared with the opportunity to control a business forever and collect fees from the third-party capital it manages over many more years.”

Ackman exhorts GGP’s board to take steps to prevent Brookfield from unfairly acquiring control over GGP, failing which, the shareholders of General Growth Properties Inc (NYSE:GGP) would lose an opportunity to obtain a control premium for their holdings. He states that the Simon Transaction continues to offer better shareholder value at much lower risk in a wholly fair financial transaction, and therefore requests the board to “immediately form a special committee of the board with its own financial and legal advisors and initiate negotiations with Simon promptly. With the support of the independent directors of the Board, we believe that Simon will work quickly to effectuate a transaction that will maximize GGP’s long-term shareholder value.”

In conclusion, Ackman cites that the ‘Simon Transaction’ would be in the best interests of the GGP shareholders, due to a better premium on the price, increased dividend, lower risk in the combined company, and lesser leverage, better liquidity of stock, and protection of jobs for GGP employees.

Accordingly, a special committee of the Board should promptly enter into negotiations with Simon, says Ackman.