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General Growth files exit proposal, auction rules

By Paritosh Bansal

NEW YORK (Reuters) - General Growth Properties Inc <GGP.N> filed an eagerly awaited plan to exit bankruptcy on its own and laid out bidding procedures, setting the stage for others like Simon Property Group Inc <SPG.N> to jump in with rival offers.

The second-largest U.S. mall owner set a two-round bidding process, with the first-round bids due as soon as April 19. It hopes to have a final deal in place and present it to bankruptcy court around July 2 and exit by September 30.

The standalone plan calls for Brookfield Asset Management <BAMa.TO>, Fairholme Capital Management and William Ackman's Pershing Square Capital to invest $6.55 billion to bankroll General Growth's exit.

In return these investors between them will get majority interest in a reorganized entity and warrants to buy another 120 million shares. It valued the warrants at $519 million as of March 30.

Brookfield, a Toronto-based investor in property, power and other infrastructure assets, would get a 26 percent stake in the reorganized company and three of nine board seats, and it could would play a larger role in General Growth's future.

Brookfield, which manages about $40 billion of real property assets, has offered to provide asset management services for free, assist in corporate finance matters and install one of its own executives to run General Growth Opportunities, a new company that would house non-core assets.

Brookfield made a case for shareholders to back a standalone exit for General Growth, saying the company's shares were undervalued as it has not been able to improve operations because of its bankruptcy.

A sale at this time does not maximize value for existing shareholders, it said.

"We believe this is one of the great real estate value opportunities currently available in the capital market," Brookfield Chief Executive Bruce Flatt said.

Indeed others are eyeing General Growth's more than 200 malls. Some of these suitors have an incentive to unseat the standalone plan before the court approves the warrants, which would make their bids more expensive.

General Growth said its bidding procedures give potential bidders the opportunity to submit better proposals both before and after the warrants are issued.

Along with the first-round bidding, General Growth said it will conduct a competitive process to obtain investments from parties who can submit binding proposals to co-invest or provide capital on better terms before the April 19 deadline.

It also said if it got additional proposals, including takeover bids, that are better than the offers in hand before the hearing, set for April 29, it may seek approvals for those offers instead.

Simon, which had initially made a $10 billion takeover offer for General Growth, has been weighing a higher bid. A new offer could see Simon partnering with Blackstone Group <BX.N> and sovereign wealth funds.

Another group of investors including Elliott Management and Paulson & Co is also interested in coming in with an offer to help fund General Growth's exit from bankruptcy.

General Growth said it has also reached out to certain parties who could be interested in making a proposal.

It wants to select bidders for the second round by April 28, and set a June 2 deadline for bids in that round.

EXISTING SHAREHOLDERS

Excluding the warrants, the company's existing shareholders will get 34 percent of the equity of reorganized General Growth and 86 percent of the equity of General Growth Opportunities.

The shareholders get $15 per share in stock, with $5 per share coming from General Growth Opportunities.

Fairholme and Pershing will invest $2.8 billion and $1.1 billion for 28 percent and 11 percent, respectively, of the reorganized company. Their investment however can be reduced to $1.9 billion if General Growth is able to raise the remaining money elsewhere on more favorable terms.

Brookfield and its consortium partners will invest $2.63 billion.

General Growth valued the warrants being given to Brookfield at $260 million, Fairholme at $185 million and Pershing at $74 million. These warrants are to be issued within one business day after the entry of an order approving its request.

General Growth said the equity investment and anticipated new debt of $1.5 billion -- or the reinstatement of a comparable amount of existing debt -- would bring it the cash needed to allow the company to emerge from bankruptcy.

Unsecured creditors will get par plus accrued interest on their claims under the plan.

(Reporting by Sinead Carew and Paritosh Bansal; Editing by Lincoln Feast and Jon Loades-Carter)

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