Here is a timeline using Bill Ackman’s letter (since BAM has not disputed the events depicted, we will assume it to be accurate).
This is paraphrased:
Since November of last year, Brookfield has been working continuously to put together a transaction to acquire GGP. Indeed, after several months of research and analysis, Mr. Flatt indicated to Ackman this past Spring that Brookfield had completed all of the necessary legal, tax, and structuring work to execute a tax-efficient transaction.Now, it is important to remember Flatt is chairman of GGP and CEO and Director of BAM, who is the largest shareholder of GGP.
On a regular basis over the past 10 months, Mr. Flatt and his colleague Mr. Madon have provided Pershing Square – and, we understand from Brookfield, GGP’s Board of Directors – with regular status updates about Brookfield’s progress in raising the necessary financing and completing the other steps required to consummate a transaction. Brookfield has repeatedly told Pershing that it has been working to put together a transaction that would be comparable or superior to the Simon Transaction (see below). To date, it has failed to raise the required capital to do so.
In September of 2011, Ackman spoke by telephone with David Simon about a matter unrelated to GGP. On the call, Mr. Simon stated that Pershing Square had erred in not supporting Simon’s takeover of GGP during the bankruptcy. Ackman responded by explaining that we were content to be long-term shareholders of GGP and expected to be richly rewarded over time. They agreed to meet later.
Ackman endeavored to design a merger transaction that would provide immediate value to GGP shareholders while allowing them to continue to participate in the value creation of the merged enterprise. It was important that GGP shareholders that the transaction would be economically accretive to Simon because GGP shareholders would own a substantial portion of the combined company when the transaction closed.
After a careful review of alternative transactions, they arrived at a potential Simon Transaction, whereby each shareholder of GGP would receive 0.1765 shares of SPG stock for each share of GGP it owned. The Transaction met objectives in that it would allow shareholders at the time (October 2011) to receive $21 per share in immediate value, a 65% premium to the $12.70 per share then-trading price of GGP, and provide them with the opportunity to continue as a shareholder in the combined enterprise. The newly merged company, “New Simon,” would increase in value in the short, intermediate and long term as a result of the economic accretion to Simon from the transaction, Simon management’s strong reputation, and the favorable long-term prospects of Class A and outlet malls.
At the October 13 meeting, Pershing made a 37-page presentation to Mr. Simon about the proposed Simon Transaction, which, among other analyses, included a detailed accretion analysis reflecting estimated synergies. They discussed the Transaction in detail with Mr. Simon. During and subsequent to the meeting, Mr. Simon expressed serious interest in pursuing the Transaction, but explained that he did not wish to spend the time and energy required to pursue the Transaction unless he was confident that it would be supported by shareholders. To that end, he asked that we speak with both Brookfield and Blackstone to determine their interest in the Transaction.
Shortly thereafter, Ackman spoke by telephone with senior representatives of Blackstone’s Real Estate Group who promptly indicated that they would be supportive of the Transaction for they agreed the merits of New Simon and the fairness of the transaction terms.
At some point in October, BAM decided to cancel their participation in GGP’s DRIP plan that was increasing their ownership stake in the company. BAM claims that the Pershing/Simon talks has nothing to do with this decision. BUT, we see a meeting was scheduled for November 4 (below). This meeting would have had to have been scheduled after the October 13 meeting with GGP and SPG, so the timing of their decision is suspect. All BAM will say is that “the DRIP plan was cancelled in October before our November meeting with Pershing.” Great, but it does not really answer the question that was, “Did BAM cancel the DRIP plan based on Pershing’s concerns?”
Pershing held a meeting with Brookfield in New York City on Nov. 4, 2011 at which Flatt and Madon explained that they did not wish to pursue the Simon transaction, but rather were interested in buying GGP, potentially in partnership with Simon. They explained that they expected that they could offer the same or superior terms as the Simon transaction and requested time to do their work.
Brookfield first attempted to finance its transaction in part with proceeds from the sale of 68 GGP malls to Simon for stock and/or cash. When Simon rebuffed the terms of the 68-mall sale because of price and Brookfield’s selection of the 68 assets, Brookfield asked us for more time to raise capital from other sources.
While Simon chose not to participate in the potential Brookfield transaction, Brookfield did, however, achieve an important objective: It induced Simon to sign a standstill agreement that prohibits Simon from continuing to work on a transaction to acquire GGP.
The effect of Simon signing a restrictive standstill was to remove the most likely acquirer of GGP other than Brookfield. As a consequence, GGP’s independent Board members and Pershing Square are now the only real impediments to Brookfield’s actual or practical control over GGP.
Meeting with Pershing on July 10, Mr. Flatt explained that he expected to be able to raise the $3 billion balance of required capital necessary to consummate the Brookfield transaction. He identified a sovereign wealth fund which was considering investing the balance of the required capital but who still needed more time to complete its work.
According to a press release on August 24, BAM is no longer interested in pursuing a transaction to acquire the company.
So, let’s start here. GGP is a NYSE-listed company. The NYSE has minimum standards those companies' boards have to adhere to:
• Conflicts of interest. A “conflict of interest” occurs when an individual’s private interest interferes in any way – or even appears to interfere – with the interests of the corporation as a whole. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her company work objectively and effectively. Conflicts of interest also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the company. Loans to, or guarantees of obligations of, such persons are of special concern. The listed company should have a policy prohibiting such conflicts of interest, and providing a means for employees, officers and directors to communicate potential conflicts to the listed company.Note the phrasing, “appears to interfere.“
Now, GGP adopted Corporate Governance Guidelines that say (emphasis mine):
Directors recognize that the avoidance of conflicts is owed to the Company and its shareholders. Directors must disclose personal or business interests that involve an actual or potential conflict of interest to the Chairman of the Board and recuse themselves from any discussion or vote related to the matterFor the record, BAM’s say the same.
BAM also says about its board:
The board of directors of Brookfield Asset Management encourages sound corporate governance practices designed to promote the well being and ongoing development of the company, having always as its ultimate objective the best interests of the company.The Hertitage Institute says:
In public corporations, where directors are elected by the shareholders, directors have a fiduciary responsibility to shareholders to work in the best interests of shareholders and for the benefit of shareholders – and not in the best interests of individual directors or managers. The appointing of directors by other directors or management to serve in a corporation that has public ownership, can produce a confusion and conflict of duties.Bernard Black, then from Stanford Law, writes:
The most important fiduciary duty is the duty of loyalty. The concept is simple: the decision makers within the company should act in the interests of the company, and not in their own interests. The easiest way to comply with this duty is not to engage in transactions that involve a conflict of interest. We often call these “self-dealing” transactions. The concept is that the directors are dealing with themselves, and may not reach an agreementHere the unfairly treated company would be GGP.
that is fair to the company.
So, Flatt is CEO and a director at BAM. He has a fiduciary duty to BAM shareholders to do what is in their best interest. That would mean in any given possible transaction getting the best deal for BAM.
He is also chairman of GGP. That means his fiduciary duty is the GGP shareholders which means in any possible transaction he would strive to achieve the highest price for GGP shareholders. In this case that would be from either BAM or SPG (who actually made a concrete offer).
So, what group is he representing? The possible buyers? or the sellers? Is he trying to get the best price for GGP holders or the best deal for BAM holders?
Let’s put that aside. Both BAM and GGP board charters call for the conflicted party to step down even if there is a “potential conflict.” It doesn’t have to be determined there actually is one. I think being CEO of the potential buyer and chairman of the seller (who, by the way, is judging the adequacy of a third-party offer) is more than a “potential” conflict. We know Flatt was intimately involved with the whole process as he is mentioned in every meeting a decision was made.
Additionally, why weren’t shareholders consulted as to the offer by SPG? SPG made an offer to buy GGP (BAM has not denied this). Why was that offer rejected by Flatt and BAM without consultation of the remaining 60% of GGP shareholders? While BAM is the largest single shareholder, they do not own a majority of shares and therefore cannot make unilateral decisions with at least consulting the rest of GGP’s board (we do not know for sure this did not happen but there are no indications it did).
The reason given by Flatt to Pershing is that “they could offer superior terms.” So Flatt said, “No, I don’t want that guy’s offer to buy the company, I think I can make my own.” This is a “self-dealing” transaction as described above. He did not have the right to reject outright an offer that at that time was a 65% premium to the share price without consulting shareholders.
Unless, he honestly thought that the best thing for BAM shareholders was in fact to own all of GGP. If I am being honest, it probably is best for BAM. Here is the problem with that. It isn’t what is best for GGP holders. What is best for GGP holders would be to be paired up with SPG. Now, we can argue over what marriage would be better all day long. What should have happened though is that GGP shareholders should have been given the choice to decide.
If Ackman had not gone public, GGP shareholders would have never been informed of the very real offer from SPG. This is unacceptable.
Now, the same goes for Ric Clark and Cyrus Madon. They both sit on the Boards of GGP and BAM so there is a clear conflict of interest. Their involvement, while not as detailed as Flatt’s is clearly prevalent, as Madon accompanied Flatt on the Pershing meetings.
GGP’s board should create a separate committee devoid of any input from Flatt, Clark and Madon to examine the SPG offer and choose what to do with it. To date no action has been taken on this.
The rumor yesterday was that GGP has hired (or is looking to hire) a banker. It is not known if this is to explore Ackman’s ideas or defend them against him. Either way, the continued contributions from BAM contingent on the board is unacceptable and in clear violation of the Code of Conduct for directors of both GGP and BAM. It’s not possible for them to honor their obligations of two sets of shareholders in a possible transaction when they are potentially bidding against and deciding on the acceptability of a third-party offer.
Something needs to happen…