Minority stake holder of General Growth Properties Inc. -- Fidelity Investments -- sees hedge fund manager William Ackman's Pershing Square Capital Management LP's recent purchase of 20% of the REIT as a catalyst that may help to turn around the beleaguered company. Shares of General Growth jumped as much as 98% in Tuesday trading on news of the Pershing purchases, which were made over a period of time in November, according to a Bloomberg report that cited an SEC filing.
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General Growth, however, will need a lot more to resuscitate a company clinging to life, suffering from enormous short-term debt assumed from its hungry appetite for acquisitions that includes Rouse Co. for $11.3 billion a few years ago. With the second-largest stake at 24% in General Growth, the privately held mutual fund company is highly exposed and will take a deep loss should the REIT falter. Fidelity like many other financial companies is already feeling a lot of pain because of the drastic downturn of the economy and the markets. It doesn't help that General Growth has already admitted that bankruptcy may be a possibility, and should that happen a loss would likely accelerate and expand Fidelity's planned job cuts. The company trimmed its India office Wednesday and announced in early November that it would cut 2.9%, or around 1,300, of its 44,000 work force around the world.
So what does Pershing see in the Chicago-based REIT? Likely, it's the strong portfolio of more than 200 shopping malls in 44 states that General Growth either owns or manages. The portfolio makes General Growth the second-largest U.S. mall owner behind Simon Property Group Inc. Another attraction might have been the low price of between 35 cents and 51 cents a share, according to the filing, when Pershing acquired its stake. Maybe the bargain price outweighed the fears of bankruptcy.
Whatever the reasons, should General Growth implode, the hedge fund manager along with Fidelity will be licking their wounds over a company that many say was on the verge of checking out through death's door. - Gerald Magpily
See Bloomberg article
See Providence Business News article
See Dealscape: General Growth reportedly hires counsel to fight off bankruptcy
