Its Time for Flatt, Chairman of General Growth Properties to Step Down

I think Mr. Flatt and the Board at General Growth Properties Inc (NYSE:GGP) are going to have some explaining to do when this is said and done…

Here is a timeline using Bill Ackman’s letter (since BAM has not disputed the events depicted, we will assume it to be accurate)

This is paraphrased:

Since November of last year, Brookfield Asset Management Inc.(NYSE:BAM) (TSE:BAM.A) has been working continuously to put together a transaction to acquire GGP. Indeed, after several months of research and analysis, Mr. Flatt indicated to Ackman this past Spring that Brookfield had completed all of the necessary legal, tax, and structuring work to execute a tax-efficient transaction.

On a regular basis over the past 10 months, Mr. Flatt and his colleague Mr. Madon have provided Pershing Square – and, we understand from Brookfield, GGP’s Board of Directors – with regular status updates about Brookfield’s progress in raising the necessary financing and completing the other steps required to consummate a transaction. Brookfield Asset Management Inc.(NYSE:BAM) (TSE:BAM.A) has repeatedly told Pershing that it has been working to put together a transaction that would be comparable or superior to the Simon Property Group, Inc (NYSE:SPG)

Transaction (see below). To date, it has failed to raise the required capital to do so.


In September of 2011, Ackman spoke by telephone with David Simon about a matter unrelated to General Growth Properties Inc (NYSE:GGP). On the call, Mr. Simon stated that Pershing Square had erred in not supporting Simon’s takeover of GGP during the bankruptcy. Ackman responded by explaining that we were content to be long-term shareholders of GGP and expected to be richly rewarded over time. They agreed to meet later

Ackman endeavored to design a merger transaction that would provide immediate value to GGP shareholders while allowing them to continue to participate in the value creation of the merged enterprise. It was important that GGP shareholders that the transaction would be economically accretive to Simon because GGP shareholders would own a substantial portion of the combined company when the transaction closed.

After a careful review of alternative transactions, they arrived at a potential Simon Transaction, whereby each shareholder of GGP would receive 0.1765 shares of Simon Property Group, Inc (NYSE:SPG) stock for each share of GGP it owned. The Transaction met objectives in that it would allow shareholders at the time (October 2011) to receive $21 per share in immediate value, a 65% premium to the $12.70 per share then-trading price of GGP, and provide them with the opportunity to continue as a shareholder in the combined enterprise. The newly merged company, “New Simon,” would increase in value in the short, intermediate and long term as a result of the economic accretion to Simon from the Transaction, Simon management’s strong reputation, and the favorable long-term prospects of Class A and outlet malls.

At the October 13th meeting, Pershing made a 37-page presentation to Mr. Simon about the proposed Simon Transaction, which, among other analyses, included a detailed accretion analysis reflecting estimated synergies. They discussed the Transaction in detail with Mr. Simon. During and subsequent to the meeting, Mr. Simon expressed serious interest in pursuing the Transaction, but explained that he did not wish to spend the time and energy required to pursue the Transaction unless he was confident that it would be supported by shareholders. To that end, he asked that we speak with both Brookfield and Blackstone to determine their interest in the Transaction.

Shortly thereafter, Ackman spoke by telephone with senior representatives of Blackstone’s Real Estate Group who promptly indicated that they would be supportive of the Transaction for they agreed the merits of New Simon and the fairness of the transaction terms.

At some point in October, Brookfield Asset Management Inc.(NYSE:BAM) (TSE:BAM.A) decided to cancel their participation in GGP’s DRIP plan that was increasing their ownership stake in the company. BAM claims that the Pershing/Simon talks has nothing to do with this decision. BUT, we see a meeting was scheduled for 11/4 (below). This meeting would have had to have been scheduled after the 10/13 meeting with GGP/SPG so the timing of their decision is suspect. All BAM will say is that “the DRIP plan was cancelled in October before our November meeting with Pershing”. Great, but it does not really answer the question that was “did BAM cancel the DRIP plan based on Pershing’s concerns” .

Pershing held a meeting with Brookfield in NYC on November 4, 2011 at which Messrs. Flatt and Madon explained that they did not wish to pursue the Simon Transaction, but rather were interested in buying GGP, potentially in partnership with Simon. They explained that they expected that they could offer the same or superior terms as the Simon Transaction, and requested time to do their work.

Brookfield first attempted to finance its transaction in part with proceeds from the sale of 68 GGP malls to Simon for stock and/or cash. When Simon rebuffed the terms of the 68-mall sale because of price and Brookfield’s selection of the 68 assets, Brookfield asked us for more time to raise capital from other sources.

While Simon chose not to participate in the potential Brookfield transaction, Brookfield did, however, achieve an important objective: it induced Simon to sign a standstill agreement that prohibits Simon from continuing to work on a transaction to acquire GGP.

The effect of Simon signing a restrictive standstill was to remove the most likely acquirer of GGP other than Brookfield. As a consequence, GGP’s independent Board members and Pershing Square are now the only real impediments to Brookfield’s actual or practical control over GGP.

Meeting with Pershing on July 10th, Mr. Flatt explained that he expected to be able to raise the $3 billion balance of required capital necessary to consummate the Brookfield Transaction. He identified a sovereign wealth fund which was considering investing the balance of the required capital, but who still needed more time to complete its work.

According to a press release on 8/24,  BAM is no longer interested in pursuing a transaction to acquire the company.

Now, it is important to remember Flatt is Chairman of GGP and CEO/Director of BAM who is the largest shareholder of GGP.

So, let’s start here. GGP is a NYSE listed company. The NYSE has minimum standards those companies Board’s have to adhere to:

Conflicts of interest. A “conflict of interest” occurs when an individual’s private interest interferes in any way – or even appears to interfere – with the interests of the corporation as a whole. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the

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