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Analysts torn over Ackman's move against Brookfield

A move by Bill Ackman, the outspoken activist investor at hedge fund Pershing Square Capital Management, to push Brookfield Asset Management (BAM.A-T) to sell its stake in a U.S. mall operator has the analyst community split on who's interests are being served.

On Thursday, Bill Ackman sent a letter to the board at U.S.-based General Growth properties -- 40 percent of which is owned by Brookfield, making it the company's largest shareholder -- calling on it to create a special committee to consider the sale of the company to rival Simon Property Group. Ackman says Simon previously discussed buying General Growth at a price that would offer shareholders a 51-percent premium if exercised today. Ackman is the second largest shareholder in the company, with around 10 percent of its shares.

That proposal discussed between Simon and Ackman did not gain traction because Brookfield Asset Management failed to sign off on the deal, Ackman said in the letter. Instead, Brookfield had said it would be interested in buying General Growth, he added.

Ackman is accusing Brookfield, which has steadily increased its stake in General Growth since it was taken out of bankruptcy in 2010, of blocking a takeover and slowly gaining greater control of the company on the cheap.

"It is only a matter of time before Brookfield de facto controls the company. This inevitability is totally inconsistent with the intent of the parties at the time the original Brookfield investment was negotiated," Ackman wrote. "More importantly, if control of the company is ceded to Brookfield, shareholders will suffer enormous and irreparable harm for they will lose the ability to capture an appropriate control premium for their shares."

Ackman calls it "wholly unfair Brookfield has been given an effectively unlimited period of time to confidentially consider a transaction to acquire GGP while having access to perfect inside information, and while Brookfield’s ownership stake in the company increases with the payment of each quarterly dividend, further cementing its control of GGP."

The founder of Pershing Square says he's simply pushing for a "level playing field" so that Simon, Brookfield and other bidders can compete to acquire the company.

Brookfield fought back against those claims, saying it has no interest in selling its stake and it has a long-term investment horizon for General Growth.

"When Brookfield was chosen as an investor in GGP, it was explicitly on the basis that we were a long-term investor. We have invested considerable capital, time and attention to support management and the Board as they enhance the value of GGP for all concerned. The results to date bear testimony to their success," it said in a statement.

Citi's Michael Bilerman says Ackman is not painting an accurate picture of the situation and is simply looking to cash in on his investment.

"We believe he unfairly painted fellow 40-percent shareholder Brookfield Asset Management in a poor light, and is also misleading investors to believe that Simon would purchase the company at a high price," he says in a note to clients. "We believe Ackman’s true motives are to simply liquefy his stake after a '77-fold' return."

Meanwhile, Canaccord Genuity's Mark Rothschild says the dispute between Ackman and Brookfield is bringing to the surface concerns over Brookfield's move to increase its stake in the company and whether this is good for shareholders.

"At this point, Ackman is focused on surfacing shareholder value in a shorter time frame and potentially exiting the investment. We believe that GGP is now in play and will very possibly be sold," he says in a note to clients. "However, a potential battle with Simon to acquire GGP could be a distraction to management for an extended period of time. Also, this will lead investors to question if Brookfield truly respects minority investors’ desire for surfacing value in a shorter time frame, something many investors question."

It's not the first time Ackman has ruffled the feathers of one of Canada's corporate giants.

Earlier this year Ackamn won his six-month proxy battle with Canadian Pacific Railway (CP-T), when he overhauled its board and forced CEO Fred Green to resign.

Following the CP battle, Ackman said he was “humbled” and “honoured” by the support he received from shareholders and felt that he was treated like “brethren” by Canadians.

With files from Reuters CTV Two CTV News CTV News Channel BNN - Business News Network CP24