Ackman Pimps (Pumps) from Board Seat

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Ackman Says General Growth Shares Are Undervalued (Update4)

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By Daniel Taub

Dec. 22 (Bloomberg) -- General Growth Properties Inc., the shopping mall owner under bankruptcy protection, is undervalued and the shares may be worth as much as four and a half times yesterday’s price, William Ackman’s Pershing Square Capital Management LP said. General Growth rose 20 percent.

“Using comparable public company valuations, Pershing Square believes GGP is worth between $24 and $43 per share,” the hedge fund run by Ackman said in a presentation distributed today.

Pershing Square, based in New York, owns a 25 percent economic interest in Chicago-based General Growth, including 7.5 percent of its shares. The balance of those holdings are in derivatives known as swaps. General Growth filed the biggest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree.

The shares rose $1.80, or 20 percent, to $10.95 today in over-the-counter trading.

Pershing Square said its General Growth estimate doesn’t include the mall owner’s master-planned communities segment, which has negative cash flow. When the housing market recovers, the unit “should generate substantial additional cash flow,” Pershing Square said in the presentation.

‘Aggressive’ Assumptions

“Some of his assumptions are at an aggressive end of a reasonable range -- more aggressive than I would use, but still within a reasonable range,” said James Sullivan, an analyst with Newport Beach, California-based real estate research company Green Street Advisors.

Pershing’s 54-page presentation, entitled “A Detailed Response to Hovde’s Short Thesis on General Growth Properties,” was prepared in response to a Dec. 14 report by Hovde Capital Advisors LLC that said General Growth shares are overvalued.

Hovde’s report said that General Growth’s “assets no longer exceed the value of the debt,” and that “current equity investors are likely to be left with little in the restructured entity,” Pershing Square said.

General Growth said last week that its board and management are evaluating options to reduce leverage and considering “all indications of interest in the company.”

Loans Restructured

The company plans to emerge from bankruptcy in stages. A U.S. bankruptcy judge last week approved General Growth’s plan to restructure about $10.25 billion in debt at some of its shopping centers and office buildings. U.S. Bankruptcy Judge Allan Gropper today said General Growth can restructure seven loans with a total value of $1.3 billion.

Ackman didn’t respond to a call for comment. Representatives for Hovde also didn’t respond to a request for comment.

General Growth “did not participate in the preparation of the Pershing Square Capital Management LP presentation nor did it review its content prior to distribution,” General Growth said in a statement. “The company has no comment on the content of the presentation.”

Ackman first said in March he intended to seek a seat on the General Growth board and in June he got it.

Pershing Square distributed a similar report on General Growth in May. Today, it listed subsequent improvements at company and in the overall economy, including General Growth’s plan to restructure $10.3 billion of secured debt “on favorable terms.”

Possible Buyers

“At least two well-capitalized buyers have announced a sizeable position in the unsecured debt of GGP and are evaluating a potential acquisition of the company,” Pershing Square said in its presentation.

Simon Property Group Inc., the largest U.S. shopping mall owner, and Brookfield Asset Management Inc., a Toronto-based real estate investor, have bought General Growth unsecured debt, Thomas Nolan, General Growth’s president and chief operating officer, said last week.

Simon Property executives have said they are interested in buying General Growth malls. Simon’s purchase of Prime Outlets Acquisition Co. for $2.33 billion wouldn’t stop Simon from buying General Growth properties, Simon Chief Financial Officer Stephen Sterrett said when the acquisition was announced Dec. 8.

The value Pershing Square today put on General Growth’s shares makes sense “if the end game is a spirited auction of this company, with multiple bidders trying to win this prize,” said Sullivan, of Green Street Advisors. “I don’t see the numbers getting anywhere near that level in the near term for this company if it’s an intact, stand-alone entity.”

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net.

Last Updated: December 22, 2009 18:11 EST
 
Maybe this report is actually an awakening into what is becoming part of a growing problem regarding hedge funds and their close proximity to company information and Wall Street traders. Inside information can flow too freely and suddenly that Chinese wall gets lost in the noise.


William Ackman fought for and received a spot on the board of General Growth earlier this year. He did so after accumulating a large stake in the company and with interest in protecting that stake. But by becoming a board member Ackman put him in contact with non-public information that would be beneficial to his outside investment which is his primary interest.


Ackman and Pershing Square Capital Management are now taking this show on the road, and public, and use the credibility of his board position to tout the company value. But is what Ackman doing healthy for the markets, or even legal?


Pershing Square is going semi-public with an analysis of the company that greatly over-values present market. News of this analysis had a 20% impact on the market the day it was released. But was this market change based on information that was previously non-public company information? Or, from the flip side, was the information in the analysis even accurate and if not could Ackman be guilty of disseminating false and/or misleading information into the market as a member of the board of the company?


When hedge funds demand and acquire board seats they suddenly create a conflict of interest between the interests of the fund and the interests of the company? In this case, Ackman seems to be teetering on a very fine line between violating any number of market regulations pertaining to information gathering and release. The fact that General Growth will not confirm nor deny the accuracy of the analysis is certainly a red flag that they too may be uncomfortable with the analysis release by a board member. As a board member, there should be rules regarding the release of future value projection since the public can not understand how accurate the analysis is but rely on the position of the releasing person as a sign of validation.


The SEC has let the hedge funds take over these markets. Isn’t it about time the SEC starts to map out a plan that protects us from the illegal trading activities we are now witnessing as being so prevalent and involving some of this nations wealthiest of people?
 
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