Today’s court ruling is huge for shareholders of GGP.
U.S. mall operator General Growth Properties on Wednesday won a nearly five-month extension of the exclusive right to present a plan to exit bankruptcy, a setback for some creditors and suitor Simon Property Group.
This means GGP can now pursue its plan as laid out with the GGP/BAM deal. The plan will allow GGP to emerge as a stand-alone company. For shareholders, there is an immense shareholder value if GGP can emerge as a standalone company. Ackman has said the shares could trade in the $24-$40 range. The key part of emerging as a standalone company is that it can then command valuation similar to Simon and once its emerges from Chapter 11 most REITs, mutual funds, and ETFs will be required to buy GGP’s shares. That will create a big demand that should ride the shares up substantially.
In court today, UBS also talked about how it plans to help GGP raise capital from the public markets:
General Growth plans to raise billions of dollars by selling stock. The extension gives the company’s investment banker, UBS Securities LLC, time to meet with REIT investors who would want to buy newly issued General Growth shares but are barred because they either cannot invest in a bankrupt company or they cannot invest in a REIT that is not traded on a national stock exchange. A REIT is a real estate investment trust.
The latter obstacle could disappear at the end of the week when General Growth returns to the New York Stock Exchange under its former ticker symbol, GGP. As for the bankruptcy hurdle, UBS said it would sell notes to REIT investors that would convert into General Growth shares when the company emerges from bankruptcy.
The company realizes that there is a demand for investors to buy GGP shares. The listing on NYSE will increase activity for the shares and should make is easier for GGP to get investors to buy into its capital raising. I expect next week we will see noticeable increase in the GGP share volume traded.
Today’s ruling has a major impact on what Simon does next. Simon will now have to substantially increase its bid. Just beating the $15 floor will not do much. GGP management knows that once it emerges from Chp 11, the shares will move up because of the demand for shares, less debt, and a better structured capital structure. Simon will have to get close to this ‘future price’ in order to have management seriously consider its bid. I think we will see Simon partner with another bidder (Westfield, Blackrock, ….) to come up with a bigger bid.
For shareholders, the best option for now is the BAM/GGP deal structure. It will allow shareholders to capture the future gains once the company emerges from Chp 11. In the meanwhile, we should see a strong spike in shares in the coming weeks, as the shares are relisted on NYSE.