UPDATE 7-General Growth gets OK on Brookfield, Simon walks

By Paritosh Bansal and Ilaina Jonas

NEW YORK, May 7 (Reuters) - Simon Property Group walked away from its $6.5 billion bid for General Growth Properties Inc and said it will not return to the table after its bitter mall rival chose a competing offer as the starting bid in a bankruptcy auction.

A U.S. bankruptcy court judge approved a General Growth motion on Friday, which makes an offer led by Brookfield Asset Management Inc the 'stalking horse' bid in the auction of the second-largest U.S. mall owner.

Simon, which had made new offers late on Thursday for a minority investment, as well as a complete takeover, wanted General Growth to delay Friday's hearing to at least Monday and negotiate a deal with it. Simon said its bids were higher than Brookfield's but were not given due consideration.

Chief Executive David Simon told Reuters in an interview that he would no longer even engage in talks with General Growth over the rest of the year.

General Growth has laid out a bidding procedure where other suitors can now come in and top Brookfield's offer with new investment proposals or bid for the whole company.

But Brookfield's bid may not face the same challenge any more. Simon has been the only other bidder to step up with an offer for the entire company, even though General Growth allowed several parties to look through its books, including Westfield Group, the world's biggest mall owner.

General Growth Properties, the Chicago-based owner of more than 200 malls, is expected to select a final deal to emerge from Chapter 11 before the middle of July and could exit by September.

Brookfield, along with William Ackman's Pershing Square Capital Management and Fairholme Capital Management, have offered to make a $6.55 billion equity investment and $2 billion capital backstop to help General Growth exit bankruptcy protection.

In return, the investors are getting warrants worth several hundred million dollars, although Ackman agreed to forgo his right to receive interim warrants to purchase 17 million shares, or 14 percent of the total.

General Growth was willing to negotiate with Simon on a price that adjusted for the warrants, which make a competing bid more expensive, a source familiar with the matter said.

General Growth's board, faced with the question of whether or not to delay Friday's hearing, voted telephonically early in the morning, President Thomas Nolan said.

The company chose to have the Brookfield-led offer approved because it believed that would protect its downside and give it greater flexibility in negotiating with Simon, said Marcia Goldstein, a Weil, Gotshal & Manges lawyer who represents General Growth.

Nolan, who was at the bankruptcy court in Manhattan, told Reuters he had hoped Simon would keep talking.

'This is just the beginning of the process. This is not the end of the process,' he said, adding that the company will be seeking other bidders as well.

'It's been a productive but long week,' Nolan said after the judge rendered his decision.



ACKMAN'S ROLE

Ackman's Pershing Square said it agreed to forgo interim warrants to purchase 17 million shares. It said the move meant giving up $128 million of value.

Pershing Square agreed to forgo the warrants on the condition the bankruptcy hearing would proceed and that warrants would still be issued to Fairholme and Brookfield.

Ackman, who owns about a quarter of General Growth, said this would align his interests with those of other shareholders and eliminate the potential appearance of any conflict.

Still, the bankruptcy court's approval would get Ackman off the hook on interim protections that Pershing Square agreed to provide to Brookfield as part of the Canadian company's investment commitment.

Under the terms announced in February, Pershing Square would have been obligated to pay Brookfield 25 percent of its profits from its investment in General Growth above $12.75 per share if the company did a deal with another party at more than that price.



THE OFFERS

Simon, teaming with Blackstone Group LP, had offered on Thursday to buy General Growth for $20 per share, raising its bid from $18.25 earlier in the week and $9 a share earlier this year. It offered to pay holders of $7 billion of General Growth unsecured debt in cash and assume about $18 billion in mortgages and other property-level debt.

It also increased an offer to recapitalize General Growth as a passive shareholder, raising the price of an investment in General Growth to $11 per share from $10 earlier.

Under the Brookfield-led deal, the investors value a core General Growth at $10 per share. It also envisages creating a new entity to house certain non-income producing assets.

The entity, General Growth Opportunities, is being valued at $5 per share, under all the offers.

General Growth's shares plunged 11.2 percent to close at $14.07, while Simon closed up 0.9 percent at $85.68, both on the New York Stock Exchange. Brookfield was up 2.5 percent at C$25.68 in Toronto.

(Additional reporting by Dan Wilchins; editing by Gerald E. McCormick, Steve Orlofsky, Andre Grenon, Gary Hill)

(For more M&A news and our DealZone blog, go to http://www.reuters.com/deals)

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