GGP: Berkowitz makes public ‘court me’

Bruce Berkowitz finally made his position clear in regards to GGP. The WSJ reports that Berkowitz is interested in converting his unsecured debt into equity. WSJ mentions that Berkowitz wants a $8 share price for his conversion. Now, with the shares trading for around $13 and two outstanding offers for $9 and $15, makes you wonder what is Berkowitz up to.

Insiders on the General Growth situation say Mr. Berkowitz is positioning himself to be courted by General Growth management, David Simon or others seeking Fairholme’s support to get their deal done. “He is telling everyone he is open to options and independent, which is a way of saying he knows he needs to be pursued by Brookfield, Simon and anyone else,” said one person working on the deal.

Berkowitz is one of the sharpest value investors. This is a great tactic by him to make it public that he is independent and can be pursued by interested parties. Yes it is mating season. As expected, Bruce is playing his card smartly by not aligning himself with any particular group.

As for his offer to convert at  $8:

Mr. Berkowitz said in an interview Monday that he is “not interested” in either of the bids currently on the table for General Growth. Rival mall owner Simon Property Group Inc. offered earlier this month to pay $10 billion to buy General Growth in its entirety. Last week, Brookfield Asset Management Inc., with General Growth’s endorsement, unveiled an offer to provide $2.6 billion in exchange for an ownership stakes in two General Growth entities that would result from a proposed split of the company.

Rather, Mr. Berkowitz said he’d prefer to convert his General Growth debt into new stock at a price of $8 per share—well below the stock’s current trading price. He’d then invest another $500 million to buy additional stock at that price, he said. If General Growth can then get one or two more major creditors to follow suit, the company will have eliminated most of its unsecured debt, he added.

“Eight dollars makes a lot of sense,” Mr. Berkowitz said. “You can come up with higher numbers, but you have to take into account what they really mean. A higher stock price with a bunch of fees, contingencies and outs is different than an all-cash number.”

We this the offer is a joke. Given the outstanding offers, converting at $8 is absurd. Berkowitz is playing his game of maximizing the return on his unsecured debt. By saying he wants to convert the debt, it will make is harder for Simon to buyout GGP without offering a substantial increase from its initial offer.

Today one more player has entered the game. This will be a very interesting bidding war with big winners will include the shareholders. We can just kick back, relax on the lazy chair, and watch the heavy weights go through their rounds. In the end we will be on the side of the winners.

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