08/24/2012 04:00 EDT | Updated 10/24/2012 05:12 EDT

Brookfield top candidate to buy out Ackman's stake in U.S. mall owner: expert

U.S. activist investor Bill Ackman could end up selling his stake in General Growth Properties to Toronto's Brookfield Asset Management Inc., the largest shareholder of the American mall owner that's at the centre of a dispute between the two investors, a retail expert said Friday.

Ackman could be "stirring up the pot" with his letter asking General Growth's board to form a special committee — independent of Brookfield directors — to look at selling the company, said Howard Davidowitz of Davidowitz & Associates, Inc. in New York.

Ackman's request could lead to an offer to buy out Pershing's 10.2 per cent stake in Chicago-based General Growth and the top candidate is Brookfield, Davidowitz said.

"Brookfield, they're perfect to buy him out," said Davidowitz, chairman of the New York retail consulting and investment banking firm.

"They're the No. 1 candidate," he said of Brookfield, which owns 42.2 per cent of General Growth.

Ackman couldn't be reached for comment on Friday.

In the letter filed Thursday, Ackman's Pershing Square Capital alleges that Brookfield (TSX:BAM.A) rebuffed a takeover offer from Simon Property Group last year that came with a 65 per cent premium in favour of taking over the company itself — though no offer has been forthcoming.

Brookfield, which manages a range of utility, infrastructure and real estate assets, refutes those allegations, saying it has no intentions to either buy GGP, nor sell its existing stake. It has said it's not taking any steps to acquire GGP nor is it having any discussions with third parties in that regard.

Pershing's letter says Brookfield is not acting in other shareholders' best interests in its attempts to acquire GGP and in its refusal to consider other offers for the company.

"The letter may lead to other things. To get the highest price if you're Bill Ackman, you want more than one bid for your stake. He may see value in stirring up the pot," Davidowitz said.

Ackman also said in the letter that Pershing Square was in discussions last year with Simon Property Group, the largest mall owner in the U.S., to acquire GGP, adding that is still the most likely buyer of the company.

Brookfield is just the most recent Canadian company squaring off against Ackman — earlier this year he waged a successful battle to overhaul management at CP Railway (TSX:CP).

However, Davidowitz also said nothing may come of Ackman's request to have General Growth sold.

"Ackman demands a lot of stuff that doesn't get done," he said, noting Ackman lost money on his investment in U.S. discount retailer Target Corp. and his efforts to turn around retailer J.C. Penney are ongoing.

"In his business, you're operating with a lot of borrowed money. The faster than you can get something concluded, the better off you are," he said.

But the challenge is that General Growth — which emerged from bankruptcy in 2010 with 183 malls in 43 states — is now a viable, blue chip company and Ackman is a short-term trader, he said.

"Real estate is a very long-term investment," Davidowitz said. "That's not necessarily consistent with Ackman."

Desjardins analyst Michael Goldberg said that Ackman's Pershing is trying to extract a premium on its stake in GGP, and that Brookfield could respond either by doing nothing or negotiating. But Goldberg said Brookfield has chosen the "do nothing" option.

Goldberg said a key takeaway is how "spectacular" an investment General Growth has been since it emerged from bankruptcy.

"The uncertainty is how far Pershing will go to pursue its objective of extracting a premium," Goldberg wrote in a research note.

"In our view, the only conflict between Pershing and BAM (Brookfield) is time frame; both agree that their investment in GGP is exceptionally valuable. With about a 42 per cent stake in GGP, Brookfield appears to have the winning hand and to be under no compulsion to shorten its time frame."

Brookfield and Pershing Square were both key financiers of restructuring at General Growth.

Shares in General Growth Properties closed down 56 cents, or 2.8 per cent, to $19.75 Friday on the New York Stock Exchange.