Ackman Reaches Deal to Drop Call for General Growth Sale

Investor Bill Ackman sold some of his holdings in General Growth Properties Inc. to the company’s largest shareholder as part of an agreement that ends his quest for the mall owner to put itself up for sale.

Pershing Square Capital Management LP, founded by Ackman, sold Brookfield Asset Management Inc. its warrants to buy 18.4 million General Growth shares, according to a filing today with the Securities and Exchange Commission. The New York-based hedge fund, General Growth’s second-largest investor, also agreed to keep its stake below 10 percent for at least four years.

Ackman will return to a “passive” shareholder after Brookfield also agreed to limits on its ownership of Chicago-based General Growth. He is dropping his call for the No. 2 U.S. mall owner, which left bankruptcy in November 2010, to explore a sale to its largest rival, Simon Property Group Inc.

“Both sides got what they wanted,” Alexander Goldfarb, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview. “Brookfield had to pay a premium to buy the warrants from Pershing Square, so that’s a victory for Pershing. And Pershing got Brookfield to amend its corporate governance.”

“At the same time, Brookfield got the warrants and got Pershing Square to agree to be a passive investor, which is a victory for Brookfield and GGP,” he said.

Ackman wasn’t available to comment on the deal. David Keating, a General Growth spokesman, declined to comment. Andy Willis, Brookfield spokesman, didn’t return a voice mail.

Shares Decline

General Growth fell 2.9 percent to $19.46 today in New York trading, the most since June.

Ackman said in August that Indianapolis-based Simon had shown interest in an acquisition and lobbied for the companies to begin talks. General Growth rebuffed the idea and Simon Chief Financial Officer Stephen Sterrett said in September that his company had “no interest” in a takeover.

Simon had tried to buy General Growth when it was in bankruptcy but lost a takeover battle to a group led by Ackman and Toronto-based Brookfield.

“It was never reasonable to think that GGP was going to be sold,” said Goldfarb, who has a hold rating on the shares. “Pershing Square passed on that option during the bankruptcy process, then Simon made offers to buy the company and they were rebuffed and consequently, Simon was very clear that they had moved on.”

Pershing is satisfied with the board’s oversight and believes General Growth should remain independent, according to the filing. The fund now holds 8 percent of the common stock.

Warrant Premium

Brookfield agreed to limit its right to vote shares in excess of 38.2 percent of the common stock, according to a separate statement. Brookfield and its affiliates also will participate in future stock repurchases by General Growth so as not to exceed a 45 percent ownership cap.

Brookfield paid about $271.9 million for the Pershing warrants, or about $14.75 each. That suggests a premium of about $4.25 per unit, based on General Growth’s closing stock price of $19.85 on Dec. 31, the date of the deal, and the warrants’ exercise price of $9.36, according to Goldfarb.

General Growth shares climbed 36 percent last year.

Before it's here, it's on the Bloomberg Terminal.